Margin trading explained: how trading with borrowed money works

Margin trading means using borrowed money to trade a larger position than your own capital allows. Your stake serves the platform as collateral, the margin, and it lends you the rest against interest. With €1,000 of margin and 3x leverage you move Bitcoin worth €3,000: if the price rises by 10 percent, you make €300 instead of €100; if it falls by 10 percent, you lose €300. In Germany margin trading is allowed but limited for retail clients: crypto CFDs may carry leverage of no more than 2:1, while margin trading on EU-licensed crypto exchanges goes up to ten times. This guide explains what margin level, margin call and liquidation mean and where you can trade crypto on margin with a licensed provider.

Margin trading at a glance: the key figures

• With €1,000 of margin and 3x leverage you trade a €3,000 position, €2,000 of it borrowed.
• At 3x leverage, a 10 percent price move against you costs 30 percent of your capital.
• Since August 1, 2018, crypto CFDs in the EU have been capped at 2:1 leverage for retail clients.
• If your balance falls below 50 percent of the required margin, a CFD provider must close your position.
• On EU-licensed crypto exchanges the maximum leverage for retail clients is ten times (as of November 2, 2026).
• Gains from futures and CFDs are taxed at the 25 percent German flat-rate withholding tax; the one-year holding period for coins does not apply to them.

What is margin trading? Trading on margin explained simply

In margin trading you borrow money or cryptocurrencies from your trading platform and trade with them on top of your own capital. The margin is the collateral you post for this, and it determines how large your position may be. The ratio between position and margin is called leverage: if you post €1,000 and hold a €3,000 position, you are trading with 3x leverage.

Margin trading works in both directions. With a long position you bet on rising prices and use borrowed euros to buy more Bitcoin than your capital allows. With a short position you bet on falling prices: you borrow Bitcoin, sell it immediately and buy it back later, ideally at a lower price. In both cases the borrowed part does not belong to you, and the platform can liquidate your collateral if the position moves too far into the red.

Margin trading is not a product of its own but a principle. You find it in spot margin trading on a crypto exchange, in perpetual futures, in classic futures on a derivatives exchange and in CFDs offered by a broker. How leverage and liquidation price work for each of these products is calculated in our guide to leverage trading with crypto; this article is about the margin itself.

Margin trading example: how leverage affects profit and loss

The table runs through margin trading with €1,000 of your own capital at three leverage levels, once with a 10 percent price rise and once with a 10 percent fall. Interest and fees are not included.

The calculation shows the core of margin trading: leverage does not multiply the price but your return, on the way up and on the way down. At 5x leverage, a 20 percent drop wipes out your entire capital. Cryptocurrencies are volatile enough for such moves to happen within a few days: by early November 2026, Bitcoin had closed more than 5 percent above or below the previous day on 14 days this year.

Margin level, margin call and liquidation: when the platform steps in

The margin level shows how much buffer your position still has. Many platforms calculate it as the ratio between your current capital in the margin account and the margin you put up, expressed as a percentage. At the start it stands at 100 percent. If the position loses, your capital falls and the margin level with it: with 3x leverage and a 10 percent price drop, €700 of your €1,000 margin remains and the margin level falls to 70 percent.

If the margin level drops below a threshold that each platform sets itself, the margin call comes: a demand to add funds or reduce the position. If you do not respond, the platform closes the position by force, which is the liquidation. For CFDs the EU prescribes the threshold: if your balance falls below 50 percent of the required margin, the provider must close out. At 3x leverage that point is reached after a 16.7 percent price drop, at 5x after just 10 percent.

Initial margin, maintenance margin and the key terms

Isolated margin or cross margin: how far a loss can reach

Before every order you decide how your margin is pledged. With isolated margin, only the amount you have allocated to that one position is at risk; if it is liquidated, the rest of your account is untouched. With cross margin, your entire balance in the margin account serves as collateral for all open positions. That pushes liquidation further out, but a sharp move can eat up the whole account.

For individual trades, isolated margin is the safer choice because you know the maximum loss in advance. Cross margin makes sense when several positions hedge each other, for example a long position in Bitcoin and a short position in ether.

Is margin trading legal in Germany? The rules for retail clients

Yes, margin trading is legal in Germany. Retail clients are, however, covered by protective rules that depend on the product. For contracts for difference, the European Securities and Markets Authority ESMA introduced tiered leverage limits with effect from August 1, 2018, 2:1 for cryptocurrencies; Germany's financial regulator BaFin made them permanent with its general administrative act of July 23, 2019. On top of that come the forced close-out at 50 percent of the required margin and negative balance protection, which prevents you from losing more than your account balance on CFDs.

Futures, perpetual futures and CFDs on crypto assets are financial instruments under the MiFID II directive, and their provider needs a licence as an investment firm. The MiCA crypto regulation, by contrast, governs the purchase, sale and custody of crypto assets. Exchanges without an EU licence are not bound by these rules: leverage of 50 or 100 is common there, and in a dispute there is no European supervisor you can turn to.

Crypto margin trading: where to trade on margin in the EU

For investors in Germany there are four routes to crypto margin trading. They differ in maximum leverage, in running costs and in whether you can lose more than your margin. The overview is as of November 2, 2026:

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In spot margin trading you buy or sell real cryptocurrencies with borrowed money. With futures you trade a contract on the price without owning the coin. Knock-out certificates have no margin at all: you can never lose more than the purchase price, but the certificate expires as soon as the price hits the knock-out barrier. Which futures exchanges charge which fees is shown in our comparison of crypto futures exchanges in the EU; regulated CFD providers and brokers are listed in the crypto broker comparison.

What margin trading costs: interest, fees and spread

Margin trading costs more than an ordinary purchase because interest on the borrowed capital comes on top of the trading fee. The platform usually charges it hourly or daily for as long as the position is open. An example with an assumed interest rate of 10 percent a year: borrowing €2,000 costs €0.55 a day and €16.44 over 30 days, regardless of whether the price rises or falls.

With perpetual futures the funding rate replaces interest: if the contract trades above the spot price, long traders pay short traders, and vice versa. Trading fees and the spread are added on every buy and sell. The longer you hold a position, the more the running costs weigh; margin trading is therefore a tool for short holding periods, not for building wealth over the long term.

Margin trading and tax: how gains are taxed in Germany

How gains from margin trading are taxed depends on the product. Gains from perpetual futures, futures and CFDs count as income from forward transactions under Section 20(2) of the German Income Tax Act: they attract the 25 percent flat-rate withholding tax plus the solidarity surcharge and, where applicable, church tax, and the one-year holding period does not apply. Losses from forward transactions can be offset against other investment income; the Annual Tax Act 2024 abolished the former cap of €20,000 a year.

If, on the other hand, you buy coins on the spot market with borrowed money, they remain purchased crypto assets to which the one-year holding period under Section 23 applies. The details are in our guide to tax on crypto futures, and our crypto tax calculator gives a first estimate. This section is not tax advice.

Five rules for margin trading with crypto

1. Start small: 2x to 3x leverage is enough to begin with, even if the platform allows up to ten times.
2. Choose isolated margin: that way you know the maximum loss of each position before you open it.
3. Limit risk per trade: a widely used rule of thumb is to risk no more than 1 percent of the account per trade.
4. Set a stop-loss: decide before entering where you will cap losses and where you will take profits.
5. Trade only with a licensed provider: platforms with an EU licence are subject to leverage limits and supervision; our comparison of regulated crypto exchanges shows which ones they are.

If you want to practise first, you can test strategies without real money in a trading demo account.

Our verdict: margin trading is a tool, not a shortcut

Margin trading magnifies every move, gains and losses alike, and costs interest or funding for every day the position is open. For experienced traders who trade short moves or want to hedge a portfolio, it is a useful tool. Beginners are better off with an unleveraged purchase and a savings plan. Margin trading with cryptocurrencies is risky, and a total loss of the margin is possible.