The History of Margin Trading
In one form or another, trading has always been there. States, corporations, smaller businesses, and individuals are all engaged in trading.
The trading game changed entirely towards the beginning of the 2000s with so many new methods, practices, and strategies emerging.
When did margin trading come to exist, and, possibly, why? What’s its history?
In essence, margin trading is a type of an investment strategy that focuses on buying and selling assets with borrowed funds in anticipation of making a higher return on your investment.
Just like many other trading practices, margin trading finds its roots in traditional finance. The concept is rather new in the crypto scene, however, it has been around in stock markets for quite some time.
Margin Trading in the 20th Century
Interestingly, margin trading was common in the United States in the 20th century. However, it differed a lot from what we know about it today, especially, from trading crypto on margin. The main differences were found in regulation and requirements.
Back in the 1920s, requirements for margin trading were quite vague. Investors were able to put down very humble funds of their own, and brokers allowed that. It’s hard to believe that leverage rates of up to 90% were common.
As a result, high leverage rates contributed to a high number of margin calls. On a side note, a margin call is the alert sent to a trader to notify them that the capital in their account has fallen below the minimum amount needed to keep a position open.
This became disastrous when the market fell, and, eventually, culminated in the 1929 crash.
Since then, buying on margin has changed substantially due to the need for a more regulated industry and stricker requirements. We can say with all certainty that margin trading has come a long way since the beginning of the 20th century.
Although margin trading is still a tricky practice that we would recommend for professional traders only, many security measures have been introduced.
Brokers now face the requirements for opening a margin account, minimum initial investments, and maximum leverage rates – among several others.
The History of Margin Trading in the Crypto Market
Unlike traditional margin trading, trading crypto on margin has become massively popular in the past three or four years.
This was largely as a result of a few platforms, such as PrimeXBT, entering the market and revolutionizing the way that traders and investors saw cryptocurrency margin trading. Following the huge amounts of growth that these platforms gained over a short period of time, other platforms began integrating margin trading as well.
Today, margin trading can be found throughout the crypto industry. In fact, the majority of the trades executed on a daily basis in the crypto space are done using margin trading.
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