Binance is emerging as the largest crypto trading platform by volume. Margin trading allows you to trade assets with borrowed funds in 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 receive more funds and help them leverage positions.
Here is a guide to trading on margin on Binance.
Binance margin trading
Binance allows you to do both margin and leverage trading. The exchange allows you to trade 3x Cross Margin and 5x Isolated Margin. If you are interested in learning how to trade margin 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 set up an account. Follow this link to set it up here and get 20% off your trades.
After logging into your Binance, you can see your account balances on the account dashboard. Under “Balance Details” click on the “Margin” option to start opening a margin trading account on Binance.
Binance Margin account balance
You can verify your identity (KYC) and make sure your country is not blacklisted. It is also a must that you enable two-factor verification (2FA).
After the verification process, you will see a pop-up window with the questions about margin trading. You must complete it by prompting “Start Quiz”.
Binance Cross 3x Margin
2. Transfer your money
After enabling the margin account in your Binance, you can now transfer funds from the Binance wallet to the margin trading wallet. After clicking on “Rand”, you will see a “Transfer” tab on the right side of the page and click on it. You can see which coin to transfer.
Binance Cross Margin Panel
We will use BNB as a case study.
Binance internal transfer to the margin account
Enter the amount you wish 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 those coins as collateral to borrow money. The margin wallet balance is the determinant of the interest rate you can borrow, with a 5:1 fixed rate. 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 Borrowing”.
Confirm Binance loan
After your margin account has been credited with the borrowed coins, you can now trade the borrowed funds while owing the coins plus the interest rate. The interest rate is updated every 1 hour.
On the right side of the screen you can see your account’s margin level. The margin level gives a trader the level of risk according to the funds borrowed (total debt) and the funds you hold as collateral in the margin account (account equity).
Margin risk level Binance
Margin levels are determined by market movements, which means your assets may be liquidated if prices move contrary to your prediction. If your account is liquidated, there is a high possibility that you will be charged additional fees.
To avoid such liquidation traps, you can calculate your margin level using the following formula:
Margin Level = Total Asset Value / (Total Borrowed + Total Accrued Interest)
When the margin level falls below or equal to 1:3, a call is identified as the margin call. The call serves as a reminder that you should either increase your collateral (by depositing more money) or reducing your loan (by paying back what you borrowed).
If you don’t honor the call and the margin level drops to 1:1, your assets will be automatically liquidated, meaning Binance will sell your funds at market price to repay the loan.
Trade on margin
If you want to use your borrowed funds to trade, go to the margin page and trade normally with stop limit and OCO orders.
Margin Limit Order
The limit allows you to place orders at a price of your choice. Limit orders are executed when the market meets your order requirements. You can even change or cancel the order to find a better price before fulfilling it.
With the stop limit order, the value of the asset reaches the maximum price. Thus, the order to buy/sell the asset is executed at the specified limit price.
The One Cancel the Other (OCO) order is a combination of a limit maker order and a stop limit order with the same quantity on the same page. When one of the orders is executed, the stop price will be triggered and the other will be automatically canceled. 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 consists of the borrowed amount plus interest. You must ensure you have the required balance before proceeding.
Select the coin you would like to redeem and click “Confirm Redemption”. You can only use the same cryptocurrency to make the withdrawal.
If you want to transfer from the margin wallet back to your regular Binance wallet, click “Transfer” and use the button between the two wallets to change the direction of the transfer. Select the coin and the amount and click “Confirm”.
The pros and cons of margin trading on Binance
Remember that margin trading has its advantages as well as its disadvantages. As a benefit, margin trading is an insurance fund that protects your account when your equity is below 0. Margin trading has a cooling off period, an option introduced to avoid excessive trading on Binance. The risk funds protect your digital assets from all risks.
Despite all its advantages, however, margin trading has the obvious disadvantages that it increases losses in the same way it increases profits. Additionally, unlike regular spot trading, margin trading has the potential for losses that exceed a trader’s initial investment. Consequently, it is a high risk trading method. So the higher the volatility and the more leverage used, the greater the risk.
Professional traders often use margin trading. The leverage involved can result in exaggerated market moves such as “long squeezes or short squeezes” where a sudden price movement can trigger liquidations and lead to greater volatility. This is a characteristic of the crypto markets, which are very thinly traded compared to most traditional markets.
Before margin trading on Binance, make sure you identify with all risks as crypto markets are volatile.
Vincent Munene is a freelance writer and a huge blockchain enthusiast. Blockchain has changed his life in terms of financial freedom and in return he likes to educate people and update them on everything blockchain related. He is a biochemist by profession and also enjoys playing the piano.