Binance tends towards the largest crypto trading platform in terms of volume. Margin trading allows you to trade assets on borrowed funds from the crypto market. You can open a position with a minimum margin limit and applicable leverage. Compared to regular trading accounts, margin trading accounts allow traders to get more funds and help them utilize their positions.
Here is a guide on how to margin trade on Binance.
Binance Margin Trading
Binance allows you to trade on margin and with leverage. The exchange allows you to trade 3x cross margin and 5x isolated margin. If you want to learn how to margin trade on Binance, you can follow the steps mentioned below.
1. Open a margin trading account on Binance
To start trading on Binance, you must first create an account. Follow this link to set it up here to receive 20% off your transactions.
After logging into your Binance, on the account dashboard, you will be able to see your account balances. Under “balance details”, click on the “Margin” option to start opening a margin trading account on Binance.
You will be able to verify your identity (KYC) and make sure your country is not blacklisted. It is also essential to activate the two-factor verification (2FA).
After the verification process, you may see a pop-up about margin trading questions. You will need to complete it by prompting “start quiz”.
2. Transfer your funds
After enabling the margin account in your Binance, you can now transfer funds from the Binance wallet to the margin trading wallet. After clicking “margin”, you will be able to see a “transfer” tab on the right side of the page and click. You will be able to see which part to transfer.
We will continue to use BNB as a case study.
Enter the amount you want to transfer from the Binance Wallet to the Margin Wallet, then click “confirm transfer”.
Margin trading at a glance
After transferring the coins to the margin wallet, you can now use these coins as collateral to borrow funds. The margin portfolio balance is the determinant of the rate you can borrow, having a fixed rate of 5:1. Now, if you have 1 BTC, you can borrow 4 more.
When you select the coin you want to borrow and the amount, click “confirm borrow”.
Once your margin account is credited with the borrowed coins, you can now trade the borrowed funds while having a coin debt plus the interest rate. The interest rate is updated every 1 hour.
On the right side of the screen, you can see the margin level of your account. The margin level gives a trader the level of risk based on the funds borrowed (total debt) and the funds you hold as collateral in the margin account (account equity).
The margin level is determined by market movements, which means that if prices move against your forecast, your assets may be liquidated. If your account is liquidated, you may be charged additional fees.
To escape these liquidation pitfalls, you can calculate your margin level using the formula:
Margin Level = Total Asset Value / (Total Borrowed + Total Accrued Interest)
If the margin level drops below or to 1:3, a call will be identified as the Margin call. The call serves as a reminder that you either need to increase your warranty (by depositing more funds) or reducing your loan (by paying back what you have borrowed).
If you do not match the call and the margin level drops to 1:1, your assets are automatically liquidated, meaning Binance will sell your funds at market price to repay the loan.
If you want to use your borrowed funds to trade, go to the margin page and trade normally using stop-limit and OCO orders.
The limit allows you to place orders at the price of your choice. Limit orders will be executed when the market meets the requirements of your order. You can even modify or cancel the order to find a better price before fulfilling it.
On the stop-limit order, the value of the asset reaches the highest price. Thus, the order to buy/sell the asset at the given limit price is executed.
One-Cancel-the-Other (OCO) order is a combination of a limit maker order and a stop-limit order with the same amount on the same side. If one of the orders executes, the stop price is triggered and the other is automatically cancelled. If you cancel one of the trading pairs, the entire pair will be cancelled.
To repay your debt, click on the “Borrow/Repay” button and select the “Repay” tab.
The amount to be repaid is the amount borrowed plus the interest rates. You will need to ensure you have the required balance before proceeding.
Select the part you want to refund and click “confirm refund”. You can only use the same cryptocurrency to make the refund.
When you want to transfer to your usual Binance wallet from the margin wallet, click on “transfer” and use the button between the two wallets to change the direction of the transfer. Select the coin and the amount and click on “confirm”.
The Pros and Cons of Margin Trading on Binance
Remember that margin trading has its advantages and also its disadvantages. As a benefit, margin trading is an insurance fund that protects your account when your equity is less than 0. Margin trading has a cooling off period, an option introduced to prevent excessive trading on Binance. Risk funds protect your digital assets from all risks.
However, despite all its advantages, margin trading has the obvious disadvantages of increasing losses the same way it increases gains. Additionally, unlike regular spot trading, margin trading can result in losses that exceed a trader’s initial investment. Therefore, it is a high risk trading method. Thus, the higher the volatility and the greater the leverage used, the greater the risk.
Professional traders often use margin trading. The leverage involved can lead to exaggerated market movements like “long or short squeezes, where a sudden price movement can trigger sell-offs and lead to greater volatility. This is a feature of crypto markets, which trade very thin compared to most traditional markets.
Before getting into margin trading on Binance, be sure to identify yourself at all risks as crypto markets are volatile.
Vincent Munene is a freelance writer and blockchain enthusiast. Blockchain has changed his life in terms of financial freedom and in return he enjoys educating people and keeping them up to date on all things blockchain. He is a biochemist by profession and also enjoys playing the piano.