Trading Toolkits

Trading Toolkits: A Look into Binance Margin Trading

Various types of trading strategies and markets are available in the crypto ecosystem. Binance, the world’s biggest exchange platform in terms of volume, is home to various markets: The spot market, futures/derivatives, and the margin market. Each of these trading environments comes with a significant amount of risk from low to high. Futures and margin markets making up the high-risk markets, while spot could be considered a lesser risk type when compared to other trade environments.

What is Binance Margin Trading?

In this guide, we will be taking a look into Binance margin trading and its operation.

Margin trading is a type of leverage trading using funds provided by a third party. Compared to regular accounts, Margin accounts allow traders to access greater capital sums, allowing them to leverage their position. Greater sums equal tremendous potential for winnings or losses.

The potential for a higher profit with a lower capital has made margin trading popular in various markets, including Forex, Stock, Indices, etc. By borrowing against their margin balance, users will be able to pick other positions without needing capital.

How Does Binance Margin Trading Work?

By simply opening and registering an account, users can go ahead in opening their Margin account right away, giving them access to leverage their position.

For example: Paul has a $1,000 Spot account balance that he is not trading on margin. He  initiates a $1,000 trade that nets 50% in a $1,000 trade, which gives him an extra $500. The profit from his trade would be $500 or a 50%  gain. 

If Paul were to use that same $1,000 to borrow an additional $1,000 on Margin trade, that gives him a total balance of $2,000, using a margin multiplier of 10x in the Isolated market. At 50%, he is making 50% of $2,000 x 10 which gives him a whopping $10,000 profit.

It’s the other way if the trade is lost. The same 50% loss on a $1,000 Spot balance will result in a $500 loss. On a margin account, that’s a total liquidation of assets and position. Chances of a higher winnings and losses are amplified during margin trading. 

Steps to Binance Margin Trade:

Log into your Binance account 

After logging in, locate the margin trade tap at the top left corner on the homepage:

You will be redirected to this screen below;

The margin trade chart screen looks like the typical spot trading screen, but the order types are far different: transfers, borrow and repay buttons, cross, and isolated margin trade types are all displayed. 

However, if you’re opening the margin trade portal for the first time, Binance will issue you a warning where you have to click on the “I Understand” tab to gain access. Please understand the warning correctly before proceeding.

1 - Transfer between spot to your margin account for free. Select your preferred coin, input the amount, and hit on confirm.

2 - Borrow on your margin, which is typically 2x of the available balance on your margin account (standard rate applied)

3 - After the execution of your trade, whether in profit or loss, the repay button allows you to pay your margin loan.

If you took too many risks or the trade results against you, Binance automatically sells the remaining balance and liquidates your account to pay back the loan.

You are able to mitigate/understand your trade risk by using the risk counter on your trade display. There is also the cross market at 3x and the Isolated market at 10x. In the event of liquidation in an Isolated market, your spot balance is not affected but will be in a cross-market.

The margin platform has now been upgraded with a margin calculator, which helps you calculate your Profit and Loss (PNL) and set your target and liquidation price. This way, you’re able to manage your risks better and better understand the type of trade you’re about to enter.

On repaying your loan, the total of the borrowed funds plus the interest rates are deducted from your balance. 

Margin page showing the hourly and the interest rate

Note that you are only able to repay your loan with the exact coin you borrowed. For instance, when you borrow BTC, you can only repay with BTC and not BNB.

At the base of the Margin trade tab, you can track your Open Order, Order History, Trade History, Funds, and Positions. Throughout your trade.

Why is Margin Trade Significant and Appealing?

Leveraging the power of Margin trade with a proper risk management strategy. Traders using Margin trading can significantly increase their portfolio balance in a short period compared to traders using only Spot.

Before taking on this type of trading, you need to understand your risk appetite and your trade personality to check if this suits your style. Increased leverage gives you a better position at earning more if the trades go right but could be devastating when it goes south.

Margin trade has found appeal amongst traders of different levels and across markets.

What are the Weaknesses?

The effect of loss on a wrong trade can be devastating to your balance. The higher the leverage, the higher the chance of getting liquidated, especially on a small portfolio.

Using the close-your-eyes-and-pray strategy and not considering risk management is a sure way of getting your assets liquidated (generated automatically). It is best advised for a newbie to stay out of this market type as it is a high-risk option.

Concluding Thoughts

There are many ways to make money in the cryptocurrency and blockchain network. Trading currencies is not the only way; it’s just one of many ways. Margin trading is a swift method. However, it should be undertaken with a lot of caution. There are a lot of ways that margin trading can go wrong, and partakers need to understand the risks associated.

Are you just joining the sector due to the current bull run of the market? Stay away from leverage trading of margin and futures until you’ve gained both experience and mastery. Apply risk management principles to protect you from sharp losses and keep you long enough in the market.

Caveat: Even the masters make losses. Stay Safe on your Trade!

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