What is margin trading? This is the usual trading on the stock exchange, but with the involvement of borrowed funds. To do this, there is such a tool as leverage. A multiplier that gives the trader access to more capital than he actually has. Only you can’t withdraw it, but you can trade it, taking the profit for yourself.
Thanks to margin trading, you can significantly increase the profit from the transaction. At the same time, the risks are also growing rapidly. For this reason, margin trading is beneficial in low-risk (usually low-volatility) markets. For example, it is often used by Forex traders who trade currency pairs with the pound sterling, the Swiss franc, the Australian dollar, and other stable currencies.
But margin trading can also be used in the cryptocurrency market. The main thing is to correctly assess the risks. It is this art that allows traders to make hundreds of percent of profits on successful transactions.
But who provides the loans? In the Forex market, it is the brokers themselves, and in the cryptocurrency market, it can be both the exchange and its users. Thus, if you are a conservative investor and do not use leverage, you can give money to Binance for deposits, receiving a stable interest. You can also combine strategies to find an acceptable level of risk.
How is the margin trading process?
To enter a trade, a trader needs to invest their funds in order to secure a margin. For example, if he invests $100 and chooses x10 leverage, his trading capital will be $1000.
Which shoulder to choose? Leverage up to x125 is available on Binance. This decision remains at the discretion of the trader, but usually no more than x2 is used in the stock market, x15 in traditional futures, and x50 in Forex brokerage. In the cryptocurrency market, traders choose leverage based on their own beliefs, but usually in the range from x2 to x100.
You can trade on the margin market both short and long. It is your funds that act as collateral for the position, not borrowed funds – you need to remember that if the market goes against you, you can lose them, and much faster than when trading without leverage.
If the situation turns against the trader, a margin call occurs – the need to deposit more funds in order to further secure the deal. If this is not done, the position is liquidated – the exchange sells your collateral to cover losses and closes the deal.
Therefore, margin trading is right for you if you:
- are an aggressive investor, willing to take on increased risk for higher returns.
- need to enter a trade, but your own funds in the required amount are not at hand.
- know how to find trades with a reduced level of risk.
- know how to hedge risks using futures or spot trading.
- understand the basics of fundamental and/or technical analysis.
How to trade on Binance
For margin trading on a cryptocurrency exchange, you need to open a separate account. To do this, you need to make sure that you have already passed the identification of the person (KYC) and connected two-step authentication (security check) for the account. Margin trading is not available in all countries.
When you open a margin account, you will be asked to review the risks, read the agreement, and check the box that you agree to the terms. Please review this information carefully.
After your consent, an account will be opened, and you must manually transfer funds to it from your spot or p2p account. No fees are charged for this.
It is the funds you have transferred here that are used as collateral for borrowing funds. So, having one bitcoin in your account, you can borrow two more for trading.
The page will always display an indicator that will show the ratio of debt and equity on the balance sheet. Green means low risk and red means high.
To return the borrowed funds, simply click on the “Repay” button. Do not forget that the money is returned with interest, in the same currency in which the loan was.
You can also send your own funds from a margin account to a spot or p2p account to be withdrawn or disposed of at your discretion.
