Margin trading enables traders to leverage their capital and enter larger positions. This is achieved through borrowing funds. For example, you can provide $1,000 worth of funds as collateral to borrow an additional $1,000 worth of funds and enter a position with $2,000 in capital. In this example, you would be using 2:1 or 2x leverage. Note that you will have to pay interest on the funds you borrow – this is the incentive for the lenders that you are borrowing from.
Users should be aware that margin trading comes with increased risks when compared to standard trading. While margin trading does provide potential for higher returns, the risk of losses is amplified as well. This is especially true when trading cryptocurrency, since the market is highly volatile. Exercise caution and don’t invest more than you are willing to lose.
Cryptocurrency margin trading on Binance
One of the best places where you can trade crypto on margin is Binance, which has created a fully-featured margin trading platform. Eligible Binance users can get started by opening a margin trading account on the exchange. Like with other services offered by Binance, users are required to verify their identity (KYC verification) before they can use margin trading on Binance.
How does margin trading work on Binance?
You can access margin trading on Binance by going to the “Trade” section at the top of the Binance interface and selecting “Margin”.
Before you’re allowed to trade on margin, the exchange will ask you to complete a short quiz in which you will demonstrate that you understand the most important aspects of margin trading. If you take your time to learn about margin trading concepts before you get started, you should have no major problems with passing this quiz. If you are an inexperienced trader, we don’t recommend using margin trading.
If you pass the quiz successfully, your Margin wallet will become accessible. You can access it via the “Margin” section of the “Wallet” menu on Binance. Then, you will be able to transfer funds from your Fiat and Spot wallet and futures wallets to your Margin wallet. There are no fees associated with transferring funds between your internal accounts on Binance.
Once you’ve transferred some funds to your Margin wallet, you can start using them as collateral to borrow funds for margin trading. Then, the borrowed funds will become available in your margin account, and you will able to use them for trading.
You can see a breakdown of all the assets supported for margin trading on Binance’s margin fee page. Here, you will be able to see the current interest rates, borrowing limits and other key information about each supported cryptocurrency. Users with higher VIP levels are charged with lower interest and can borrow larger amounts of cryptocurrency.
After borrowing funds for margin trading, it’s important to keep a close eye on your margin level. On Binance, the Margin Level is visualized with a gauge, which shows your account’s current risk level – higher values mean less risk. You can see your Margin Level by going to your margin wallet.
Your Margin Level is calculated with the following formula:
Total Asset Value / (Total Borrowed Value + Total Accrued Interest Value)
There are two important Margin Level values that you need to watch out for. If your Margin Level is at 1.3, you will get a Margin Call. This means that you will be notified that your margin account is in a risky position, and you will be reminded to either add more collateral or repay some of the funds you borrowed. In the event that your Margin Level falls to 1.1, your assets will be liquidated – Binance will sell your collateral at market rates in order to repay the loan.
Isolated vs. cross margin
Binance offers two main margin modes that are important for users to understand – isolated margin and cross margin.
When using the isolated margin mode, every trading pair has its own isolated margin account. You have to manually manage your margin for each position, but the advantage is that the risk of the position is isolated in each separate isolated margin account. Currently, the maximum leverage allowed by Binance for isolated margin is 10x.
When using the cross margin mode, all of the assets in your cross margin account are shared by all your margin trading positions. Consequently, the total value of the assets and debt in your cross margin account is used to determine your margin level. Currently, the maximum leverage allowed by Binance for isolated margin is 3x.
Why would you want to use margin trading?
The most obvious reason why you would want to use margin trading would be to leverage your capital. If you correctly predict the direction of the market, you will be able to achieve outsized profits. For example, if you provide $1,000 as collateral to enter a position worth $2,000, you will be getting the same profits (minus trading fees and interest) as if you had invested $2,000. However, the same is also true for losses if the market moves against you.
One of the advantages of margin trading on Binance is that you can use many different types of crypto assets as collateral. For example, you can use ETH to enter a margin trade based on BTC. This allows much more flexibility for users to deploy a variety of trading strategies.
Margin trading can enable arbitrage strategies based on the funding rates in futures markets. In some market circumstances, traders can earn a profit by longing a coin via futures while simultaneously shorting it via margin trading, or vice versa.
Margin trading is also suitable for users who want to access leverage but don’t want to deal with the complexity of futures contracts.
Earn extra rewards on Binance Margin with Funday Friday
Another reason to use margin trading on Binance is Funday Friday, a program launched by Binance to promote their margin trading functionality. Every Friday, Binance distributes 20% of its income from Binance Margin transaction fees to traders. The rewards are paid out in the BUSD stablecoin, and have to be claimed within 5 days.
There are two factors that determine how much of the reward you get – your average borrow amount and your average trading volume. To calculate these averages for each user, Binance takes into account a 1-week period starting with the previous Thursday.
During Funday Friday, 5% of the Binance Margin fees are distributed according to users’ average borrow amount, while the remaining 15% is distributed according to users’ average trading volumes.
The minimum average trading volume that’s required to be eligible for Funday Friday rewards is 1,000 BUSD. For rewards related to the daily borrow average, the minimum daily borrow average is 100 BUSD.
You can go to the exchange’s Funday Friday dashboard to see if you have earned any rewards and read the official rules of the promotion.
Earn rewards on Binance Margin’s Funday Friday
The bottom line
Margin trading is a useful tool that can make your capital go further, and can also unlock some unique hedging and arbitraging opportunities. While trading with leverage might prove too risky for some traders, others will enjoy the additional flexibility it offers.
Binance offers a comprehensive suite of margin trading features, including isolated and cross leverage, support for multiple types of collateral and a wide selection of cryptocurrencies that can be traded on margin. The exchange’s Funday Friday promotion adds a nice additional incentive for users, who can earn some extra BUSD rewards if they are trading actively.
When using Binance Margin, it’s important to actively monitor your Margin Level and adjust your position accordingly to avoid liquidation. Tools like stop-loss orders can help you minimize losses in case your trade doesn’t turn out as expected.
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