Margin: how it works

Whether you want to buy or sell bitcoin on Paxful, it is important to know the role margin plays on your trade offers. The trading flow on our marketplace is quite user-friendly and self-explanatory. However, this article provides you additional insights on how margin can be used to improve your trading experience.

Setting a margin in your offer to make a profit

On Paxful, you can create offers to either buy bitcoin or sell them. It’s vital to understand how to use the margin percentage correctly, to make your offers both profitable and competitive.

Setting a margin for an offer to buy bitcoin

While creating offers to buy bitcoin, you need to understand that the margins work in a counter-intuitive way. 

Note:

  • While buying bitcoin, a negative margin gives you profit.
  • While trading bitcoin, the most important part is not the amount of actual bitcoin you buy or sell, but how much you earn or spend for it in traditional currency.

Let’s take a look at some examples of how a margin percentage can be used for an offer to buy bitcoin.

Example 1: 

Suppose you create an offer to buy bitcoin with bank transfers and choose a 5% margin. This means you are going to pay 5% above the market price for every purchase you make. In other words, at the end of the trade, you’ll be transferring to the seller’s account 105% of the value of whatever fraction of bitcoin you choose to buy.

How much will you earn as a buyer of bitcoin? 

When you’re buying bitcoin, the concept of “profit” is subjective. The lesser you pay above market price for your bitcoin, the better that deal will be for you. For example, if you buy bitcoin at a 5% margin, you don’t make a direct profit, but rather you get your bitcoin for a relevantly low fee. This is acceptable because as soon as you have bitcoin, you can sell it yourself on Paxful at a profitable price or you wait for the bitcoin to grow in value when the market price goes up.

 In the above mentioned sample offer with a 5% margin,

You pay 100 USD 

You get 95 USD worth of BTC

How attractive is this margin for a bitcoin seller?

How attractive your margin is depends on two factors:

  1. As long as the bitcoin seller gets even a little bit more than the bitcoin market price, your offer may be considered as attractive.
  2. You can look through existing offers for the same payment method, country, and currency, to find out how they are priced. You can also check other trading platforms or simply check our Sell Bitcoin list.

Example  2:

If you have a prepaid card or gift card that you don’t need anymore, you could sell it for bitcoin. Prepaid cards and discount gift cards are usually sold at higher margins. You can set a margin of 15% for your offer and you’ll find a bitcoin seller who is willing to trade with you as you’re offering to buy their bitcoin at 15% above market price.

How much will you earn as a buyer of bitcoin? 

As a result, you will pay 115% for the bitcoin you are planning to buy. In other words, your 100 USD card will be sold for 85 USD. 

You pay 100 USD in Gift Cards

You get 87 USD in BTC

Setting a margin for an offer to sell bitcoin

While creating offers to sell bitcoin, it is good to have a thorough understanding of how margins work. 

Note:

  • When selling bitcoin, a positive margin gives you profit.
  • While trading bitcoin, the most important part is not the amount of actual bitcoin you buy or sell, but how much you earn in USD equivalent. Always pay attention to the amount in the traditional currency.

Let’s take a look at some examples of how a margin percentage can be used for an offer to sell bitcoin.

Example 1: 

Suppose you create an offer to sell bitcoin for cash and set the margin at 15%. This means that your offer price of bitcoin is 115% of the current market price. 

How much will you earn as a seller of bitcoin?

You’ll earn 15% on every sale. So, for every 100 USD you receive in cash you’ll pay a bitcoin equivalent of about 87 USD to the buyer, plus a 1% fee for using our secure escrow. This 1% fee is calculated based on the trade amount which is 87 USD.

You sell about 87.87 USD in BTC

You get 100 USD

Is this margin attractive to a bitcoin buyer?

Whether your margin is attractive to the buyer or not depends on various factors like how the market is doing, the buyer’s preferences, and so on. You can check other offers using the same payment method, country, and currency to get an idea of the acceptable margins. Also, see our Buy Bitcoin offer list to know what buyers are looking for.

Example 2:

Let’s say, you want to sell your bitcoin via PayPal transfer. If you need to sell your bitcoin very quickly, you can decide to set an offer price below the market price, and you’ll be selling at a loss. For example, if you set a margin of -10% the price of your bitcoin is 90% that of the market price.

How much will you earn as a seller of bitcoin?

Since you chose to sell below market price, you’ll lose 10% on every sale. So, for every 100 USD you receive on your PayPal wallet, you’ll pay 111 USD in BTC to the buyer, plus a 1% fee for using our secure escrow. 

You get 100 USD via PayPal

You sell 112 USD in BTC

Is this margin attractive to a bitcoin buyer?

Yes, if you offer bitcoin at a price lower than the current market price, buyers will show more interest in your offer. To get a better idea, you can check other offers with the same payment method, country, and currency or check out our list of Buy Bitcoin offers.

Margin in an offer vs price of bitcoin in an offer list

To trade on Paxful it is also important to understand how that you set for an offer relates to the bitcoin price shown in our public listing. In other words, how your potential trade partners see your offer. 

Here is the formula which calculates the % above or below market price and how much your trade partner gets on the dollar:

OfferPrice = MarketPrice + ((MarketPrice / 100) * Margin)

Get on dollar = MarketPrice / OfferPrice 

% above/below market price = (OfferPrice / (MarketPrice / (OfferPrice / 100)) - 100

Offers to buy bitcoin

Example 1: 

Suppose you create an offer to buy bitcoin via bank transfers with a 10% margin. 

Your potential bitcoin sellers will see the following: get on dollar 1.05 and the price of bitcoin 10% above market price.

Where do these numbers come from?

Example market price: 7000 USD

Your potential trade partner will see the following:

Get on dollar 7000 / 7700 = 0.91 

% above/below market price (7700 / (7000 / 100)) - 100 = (7700 / 70) - 100 = 110 - 100 = 10%

10% above market price

Example 2:

Suppose you create an offer to buy bitcoin using Ethereum with a -15% margin.

Example market price: 8500 USD

Your potential trade partner will see the following:

Get on dollar 8500 / 7225 = 1.18 

% above/below market price (7225 / (8500 / 100)) - 100= (7225 / 85) - 100 = 85 - 100 = -15%

15% below market price

Offers to sell bitcoin

Example 1: 

Suppose you create an offer to sell bitcoin for gold and set a margin of 20%.

Your potential bitcoin sellers will see the following: 

Get on the dollar 0.83 

Price of bitcoin 20% above market price.

The math for these numbers is as follows:

Example bitcoin market price: 9550 USD

Offer bitcoin price: 120% of 9550 USD = 11460 USD

Get on the dollar: 9550 / 11460 = 0.83

% above or below market price (11460 / (9550 / 100)) - 100= (11460 / 95.5) - 100 = 120 - 100 =  20

20% above market price

Example 2: 

Suppose you create an offer to sell bitcoin for cash payment with a -2% margin.

Your potential bitcoin sellers will see the following: 

Get on the dollar 1.02 

Price of bitcoin 2% below market price.

The math for these numbers is as follows:

Example bitcoin market price: 5000 USD

Offer bitcoin price: 98% of 5000 USD = 4900 USD

Get on dollar: 5000 / 4900 = 1.02

% above/below market price (4900 / (5000 / 100)) - 100= (4900 / 50) - 100 = 98 - 100 =  -2

2% below market price

Discount on offers to sell bitcoin for gift cards

As with all other payment methods, when creating an offer to buy bitcoin for gift cards, you have to set a margin. However, your potential trade partner will not see a percentage above or below the market price. Nor will they see how much they’ll get on the dollar. Instead, such offers show how big the discount is for a gift card. 

Here’s an example:

Suppose you create an offer to buy bitcoin with gift cards and set a margin of 20%. This means you’ll buy bitcoin at 120% of the market price.

Your potential trade partner will see the gift card offer with a 15% discount. So how is this discount calculated?

100 * (1 - MarketPrice / OfferPrice * (1 + Paxful escrow fee / 100))

Let’s take an imaginary bitcoin price of 1000 USD and a gift card type with a 2% escrow fee.

100 * (1 - 1000 / 1200 * (1 + 2 / 100)) = 100 * (1 - 0.83 * 1.02) = 100 * (1 - 0.8466) = 100 * 0.1534 = 15% 

Note: If you create an offer to sell bitcoin for gift cards, your trade partners see a percentage below or above market price and how much they earn on the dollar. 

Paxful fee for offers to sell bitcoin

There’s an escrow service fee when you sell bitcoins on Paxful. The fee depends on the payment method you choose.

Does your offer margin include the fee? 

No, the margin and the eventual offer price exclude the escrow fee.

Is the fee included in the calculations shown to your trade partners? 

In the public offer list, your potential trade partner will not see the escrow fee. They’ll only pay attention to the % below or above market price and how much they will get on the dollar.

Note: Discount for offers to sell gift cards does include escrow fees. 

Using positive and negative margins

When you trade on Paxful, your margin can be either positive or negative. We want to give you the freedom to use both types of margins so you can be as flexible as you need. 

When is it good to use a positive margin?

Usually, you would set a positive margin in your offer if you want to sell your bitcoin at a profit.

Here’s an example:

Let's assume you want to exchange your bitcoin for money directly. In this case, you create a sell offer for a bank transfer. You decide that you want to make a  25% profit. To achieve that, you need to set your margin at 25%. As a result, you’ll get 125% of the transfer value.

For example, if the trade happens for 100 USD, then 100 USD is 125% of the value of bitcoin you’ll owe the buyer.

In other words, you’ll pay 100% of 100 USD to the buyer. That will be 

100 / 125 = 0.8

This means that the buyer gets 0.8 USD worth of bitcoin for every dollar that they pay you.

Based on the original assumption that the buyer pays you 100 USD, they’ll get 80 USD worth of bitcoin and this means that you save 20 USD worth of bitcoin on this trade.

When is it good to use a negative margin?

Usually, you would set a negative margin in your offer if you want to buy bitcoin, so that you’ll end up paying less for the amount of bitcoin you get from the seller.

Here’s an example:

Let's say you want to create an offer to buy bitcoins for your gift cards. You decide to make your offer attractive to bitcoin sellers and you are willing to set a margin of -5%.

This means that your asking price for the bitcoin is 95% of the actual selling price.

In an example of trade for a gift card worth 200 USD, you’ll receive190 USD worth of bitcoin. In this case, the seller makes a profit of 10 USD worth of bitcoin on the 200 USD trade, which is 5%.

100 / 95 = 1.05 USD per 1 dollar - bitcoin seller’s profit.

Before choosing a margin for your offer, take into account the margin limits set for certain payment groups.

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