WHY SHOULD I TRADE WITH BINANCE MARGIN?

4 min readJul 13, 2022

13/07/2022

By Damilola Ogungbayi olushola

INTRODUCTION OF MARGIN TRADING IN CRYPTO WORLD

Trading on margin is inherently riskier than regular trading, but when it comes to cryptocurrencies, the risks are even higher. Owing to the high levels of volatility, typical to these markets, cryptocurrency margin traders should be especially careful. While hedging and risk management strategies may come in handy, margin trading is certainly not suitable for beginners.

Being able to analyze charts, identify trends, and determine entry and exit points won't eliminate the risks involved with margin trading, but it may help to better anticipate risks and trade more effectively. So before leveraging their cryptocurrency trades, users are recommended first to develop a keen understanding of technical analysis and to acquire an extensive spot trading experience.

WHEN SHOULD I MARGIN TRADE?

1.When you want to increase your buying power

If you are restricted by your current capital, but hope to capitalize further on a potential trade, margin trading can allow you to increase your position in the market for magnified returns. For example, if you are interested in purchasing $1000 of bitcoin, but only have $500, you can use margin trading to do so.

2.When you want to diversify and hedge

If you are thinking of diversifying your portfolio into other crypto, but only have a small capital to do so, you can use margin trading to increase your buying power. Using margin trading to enter a hedged position against the crypto market can also help protect against major market downturns.

3.When you understand your potential losses

Because of the high risk involved, it is not recommended for beginners who do not understand the potential losses. Traders who are experienced, have understood the risks and want to attempt margin trading can do so with proper risk management strategies like stop-limit orders. in place. If you’re exploring margin trading, check out these additional resources regarding Margin Trading before you start.

WHY IS BINANCE MARGIN GOOD FOR YOU?

1.Diverse trading pairs

Binance Margin supports 600+ trading pairs, including some trading pairs that are not commonly offered.

2.Multi-asset collateral

Margin users are able to invest multiple assets as collateral to borrow and trade on leverage. On Binance, this can be done in the cross-margin mode. Instead of investing BTC only into a BTC-based margin trade, investors can use their BTC and ETH, or BUSD, USDT, and so on, to denominate their collateral, allowing traders to operate with more flexibility when opening trades.

3.Cooling-off period

In order to help users avoid excessive trading, users can temporarily suspend margin-trading-related activities for a specific period by activating the Cooling-off Period function. This is part of Binance’s efforts to encourage responsible trading and prevent compulsive trading behavior.

4.Insurance fund

Binance Margin has an insurance fund that protects users’ accounts when their equity (i.e. their assets minus liabilities) is less than 0, or when the user is unable to repay debts due to lack of funds in the account.

EXAMPLES/ CASES OF USING BINANCE MARGIN

Gift believes the price of BNB will go up, so she wants to open a leveraged long position on BNB. To do so, she first transfers funds to her Margin Wallet and then borrows BTC. Next, Gift uses the borrowed BTC to buy BNB.

If the price of BNB goes up as Gift expected, she can sell her assets and repay the borrowed BTC along with the corresponding interest. Any leftover for that trade will represent her profits.

However, margin trading can amplify both the gains and the losses. So if the market moves against Gift’s position, she will have bigger losses.

MAKE YOUR FIRST TRADE ON BINANCE MARGIN

With Binance Margin trading, Traders are given access to exotic trading pairs. This involves two cryptocurrencies paired together (e.g. BTC and ETH). Instead of buying or selling these digital assets, traders can speculate on the relative performance of the two. With Binance, traders can trade pairs with leverage of up to 10X. Keep in mind that the more volatile a token is, the less liquidity the market will hold for it. This is because the asset is less reliable to bet on, causing fewer trades to be established in that market.

Unique to margin trading is the ability for users to invest multiple assets as collateral to borrow leverage. On Binance, this can be done in the cross margin mode. Instead of allocating BTC only into a BTC-based margin trade, investors can use their BTC and ETH, or BUSD, USDT, and so on, to denominate their collateral. Allocating multiple assets as collateral allows traders to operate with more flexibility when opening trades.

Also on Binance Margin, Traders can take advantage of arbitrage opportunities when the funding rate on futures pairs is volatile. For instance, when the BTC/USDT perpetual funding rate is negative, users can use margin to short the trade with BTC/USDT while entering a long futures BTC/USDT perpetual trade to make a profit with low risk. Thus, traders aren’t necessarily dependent on the price of underlying assets but are more concerned with the markets’ actions. Since the two trades are placed in opposing directions, it doesn’t matter how the market trends, minimizing the risks to the trader.

FINAL THOUGHTS

Margin trading can expose traders to opportunities unavailable in other forms of trading. When margin trading with purpose and attention, it can become a fun and profitable endeavor.

As noted earlier, trading in margin should be done by those with experience in trading. Traders must understand the risks involved in margin trading. Useful tools like stop-orders should be used whenever possible. At any rate, the options discussed above with trading margin are possible through Binance. To get started click on the link below.

https://www.binance.com/en/trade-margin/BTC_USDT?ref=331234001