Margin Trading is something that only experienced traders should take on as it deals with many facets of trading that go beyond the usual buying and selling of assets. The ability to leverage is attractive as it multiplies your profits by locking a small capital, but it is also a double-edged sword because the losses are magnified. However, this is a risk that can be managed somewhat by setting appropriate stop-loss orders to protect your capital.

However, there is a particular risk that you might not be able to defend against as you are guaranteed to lose if it happens. You will be entirely at the mercy of your broker/exchange. It happens more often in the stock markets but less so in the cryptocurrency world.

What's this risk? When you open a margin trading position, you will be borrowing an asset to open your position. This asset does not come free and you will need to pay an interest for the duration of the loan. The longer you borrow the asset to leave your position open, the more interest you will be paying cumulatively.

Here comes the kicker: what happens if you cannot close your position? You will then continue to pay interest on the position, with no way to get out of it! In the stock market, this can happen when a stock is suspended from trading due to ongoing investigations. If you look at the Hong Kong Stock Exchange, there are stocks that have been suspended for a year or more! In cryptocurrency trading, this can theoretically happen if the blockchain for the coin/token is offline for some reason and the exchange decides to suspend all activities for the coin, including deposit, withdrawals and trading. The exchange can choose to allow trading within the exchange to continue since the transactions are kept within the exchange (especially so for centralised exchanges) and need not be dependent on the blockchain, but like I mentioned, you are entirely at the mercy of the exchange.

So how can you reduce the risk of this happening? Try to avoid dodgy stocks or coins and if you must invest in them (because they are great to short when riding the price down), try not to be too greedy, take profit on the way down so you are less exposed, and get the hell out when regulators start sniffing around!

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