Introduction of Margin Trading in the Crypto World
Margin trading involves trading assets using funds provided by a third party.
In other words, traders access greater sums of capital to amplify trading results.
The goal is to help them realize larger profits on successful trades as compared to the outcome when they use just their funds.
Little wonder margin trading is popular in high-volatility markets like Forex and cryptocurrency.
Interestingly, Binance Margin lets users borrow funds from the Binance Exchange to increase their position size in margin trading.
So, if you have been looking to increase your buying power, this might be your chance.
Keep reading to see why Binance Margin is a good choice.
- Margin trading is common among traders that want to maximize profits.
- Binance Margin allows traders to borrow funds to practice margin trading.
- Diverse trading pairs and multi-asset collateral are some advantages of using Binance margin.
- Losses may occur when trading margin.
Why Is Binance Margin Good For You?
a. Diverse trading pairs
On Binance Margin, you will find over 600 trading pairs to choose from.
The popular pairs include:
b. Multi-asset collateral
Secondly, Binance Margin allows users to invest multiple assets as collateral to borrow and trade on leverage.
For example, you are not restricted to using only BTC as collateral for a BTC-based margin trade.
You can invest BTC, ETH, BUSD, USDT, etc. to denominate your collateral.
Thus, granting you more flexibility when opening trades.
c. Cooling-off period
This is a feature on Binance Margin that enables users to temporarily suspend margin-trading-related activities for a given period.
The idea is to help users avoid excessive trading and prevent impulsive trading behavior.
You can set a Cooling-off period of 1 day, 3 days, or 1 week.
During this time, you cannot borrow any funds from your margin account.
When it is completed, you may resume your margin trading.
d. Insurance fund
Another reason why you should choose Binance Margin is that it has an insurance fund that protects users.
Thus, you’re covered even when your equity is less than 0, or you’re unable to repay debts due to insufficient funds.
e. Good reputation
Furthermore, you should trade on this platform because of its reputation.
Over 80 million people trust Binance and actively use it because it adopts commendable security measures.
Plus, it is easy to use.
I’ll now show you some examples of using Binance Margin.
Examples/ Cases of using Binance Margin
I have two examples for you; one is a case of profit and the second is a case of loss.
Check them out:
Case 1 – Profiting from Binance Margin
Ada wants to purchase $300 of bitcoin, but only has $100.
She then goes to Binance Margin and places an order with a 3x multiplier.
This automatically borrows her $200 and increases her asset to $300.
With that, she can then buy the BTC she needs.
Let’s say Bitcoin does 2x, it means her asset will become $600.
If she decides to sell at this point, the system will automatically repay her loan of $200.
So, she has $400 to herself (without considering transaction fees), meaning she has made a profit of $300.
That’s 3x her initial capital. Wow!
Case 2 – Making Losses
Assuming Bitcoin drops in price and Ada’s asset goes below a set limit.
In other words, she is not making a profit and will most likely not be able to repay her loan.
Hence, the system will automatically liquidate her collateral to repay the loan.
This may cost her up to 80% of her initial investment and leave her with just $20. Oh my God!
There is a way out though.
Ada can top her collateral with more funds to avoid being liquated.
Gratefully, Binance sends a “margin call” (notification) to traders in this situation to top up their funds and avoid being liquidated.
Another wise choice would be to opt for the Cross margin mode instead of the Isolated margin mode.
In the Cross Margin mode, the margin balance is shared across all open positions to avoid liquidation.
So, your profits in other positions can balance the margin for the position incurring losses.
While in the Isolated margin mode, the margin balance is issued to an individual position, making it more prone to liquation.
Nevertheless, we cannot deny that the amplified profits from margin trading are irresistible.
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Before we wrap up this post, let’s answer a few questions.
No doubt, Futures and Margin trading are similar because they both involve trading with leverage.
However, key differences between them include:
i. In Futures, you trade with mainly borrowed assets but in Margin, you can use your assets as collateral.
ii. Secondly, your collateral must be in a coin that you wish to trade in Futures but in Margin, you can use any of your assets.
iii. Again, you’ll find almost all the markets on Spot Trading in Margin but only a few of them are available on Futures.
iv. Futures trading offers higher leverage (up to 10x) than Margin trading (3x, 5x)
It could result in losses that exceed your initial investment because the same way profits are amplified, losses are also amplified if the tide is not in your favor.
Therefore, you ought to fully understand this strategy before you use it.
Margin trading is a good option when you want to increase your buying power or diversify and hedge.
However, Margin training is not recommended for beginner traders but for experienced traders who understand their potential losses and are able to trade with proper risk management strategies.
Margin trading is a popular strategy used by traders to amass profits.
But there is a high risk of losses as much as there is room for maximum profits.
Gratefully, Binance Margin has inbuilt features to help users curb losses and grow their assets.
Don’t wait any longer, click here to start trading on Binance Margin.
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Thank you for reading this article to the end. I hope it was worth your time.
Please, drop any questions/suggestions you may have in the comments section below.
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