How to participate in margin lending to earn a passive income?

08th Feb 2019
|

Margin lending is one way to make a passive income by lending crypto currencies to margin traders. See also a full list of lending crypto.

This is an introduction on how one may approach the risky process of margin trading. However it is important to note that your financial situation is unique and this general approach might not be fit for to your situation. This is not financial, tax or professional advice.

Step 1: Understand the risks

The risks of margin funding, need to be considered in detail before embarking on this passive income stream. Just because there is an opportunity for passive income it does not necessarily mean that it is profitable to take it.

Step 2: Understand the platform mechanics

  • Mechanics of lending
    • How does it work?
  • Ease of use / Likelihood to make a mistake.
    • Are you comfortable using the exchange?
  • Currencies being lent.
    • Holding crypto is the risk in itself, are you happy with holding a particular currency in the long or short term?
  • Average interest rates on the platform
    • Do the historical interest rates justify the risk / reward ratio?
  • Deposit fees, Withdrawal fees, Margin fees
    • How much interest is needed just to pay for the above fees?
  • Loan Terms
    • What are the minim and maxim lending periods?
    • Are you comfortable with them?
    • What is the minimum lending amount?
  • History of the exchange
    • Hacks
    • Trustworthiness
    • Controversial issues
  • Automation possibilities
    • Is the exchange supported by lending bots?
    • Does it have automatic relending?
    • Is there a possibility to lend at the average interest rate?

Step 3: Choose a platform

Step 4: Decide how to execute your margin funding

There are three ways to execute margin funding trades

  • Manually one by one.
    • This is an excellent way to learn the ropes
  • Using the Auto renew functions and the Average interest rates
    • Monitor how the system performs
  • Via Lending bots such as CryptoLend or CoinLend
    • More advanced methods, giving you flexibility especially when managing multiple portfolios on multiple exchanges.

Step 5: Decide your risk strategy

As there are a number of risks to margin fund, there are some conter risk strategies which may reduce the risk. The core of this risk minimizing strategy is diversification, there is no guarantee that it will protect you or even reduce your risk!

Step 6: Set your passive income objectives

Any investment needs to have an exit strategy. Passive income from margin funding is no exception. What is your plan?

Step 7: Monitor and Rebalance

Crypto Exchanges are always in the news, sometimes for the good and sometimes for the wrong reasons. Hacks, regulatory issues, slow withdrawals and many other issues come up almost daily. In some cases it will be too late to do anything, in others learning about an issue a few days before can be a coin saver.

Airdrop snapshots and forks are important to consider when margin funding. These are the benevolent donation of free coins. EOS and Bitcoin experience these a number of times a year.

In general exchanges do not support these snapshots and rarely give out the airdrops. It might be interesting to move your coins to a your own wallet on the snapshot date.

Conclusion

Margin funding has potential for passive income, but the interest rates vary to such an extent that it is impossible to make any kind of stable predictions. Without a stable prediction it is also very difficult to measure the risk-reward ratio. In addition the price of the underlying capital in USD terms is swinging up and down widely which makes it impossible to predict what will the value of a margin funding portfolio in a years time.

You might also be interested in 

Not investment advice. Not financial advice. Consult your financial advisor. Not a recommendation to buy, sell or hold. The staff of this site may own these digital asset/s mentioned on this page. Investing is risky and you may lose all your capital. See full disclaimer.

Keep in mind that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try our best to keep things fair and balanced, in order to help you make the best choice for you.

Author: Jim Reynolds
Jim Reynolds. Is passionate about finance, passive income and cryptocurrencies. He writes about his passions on NodesOfValue.com. He has worked in the tech and financial industry for a few decades. He holds a masters in business admin and a bachelors in IT. All his writings are not investment advice.

Submit a question or Suggest a passive income asset for our review:
By using this form you agree with the storage and handling of your data by this website.
Subscribe To Our Newsletter

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!