Binance Margin — Funday Friday!
What is Binance Margin?
Margin trading is a method of trading assets using funds provided by a third party. When compared to regular trading accounts, margin accounts allow traders to access greater sums of capital, allowing them to leverage their positions. Essentially, margin trading amplifies trading results so that traders are able to realize larger profits on successful trades. This ability to expand trading results makes margin trading especially popular in low-volatility markets, particularly the international Forex market. Still, margin trading is also used in stock, commodity, and cryptocurrency markets.
In traditional markets, the borrowed funds are usually provided by an investment broker. In cryptocurrency trading, however, funds are often provided by other traders, who earn interest based on market demand for margin funds. Although less common, some cryptocurrency exchanges also provide margin funds to their users.
How does margin trading work?
When a margin trade is initiated, the trader will be required to commit a percentage of the total order value. This initial investment is known as the margin, and it is closely related to the concept of leverage. In other words, margin trading accounts are used to create leveraged trading, and the leverage describes the ratio of borrowed funds to the margin. For example, to open a $100,000 trade at a leverage of 10:1, a trader would need to commit $10,000 of their capital.
Naturally, different trading platforms and markets offer a distinct set of rules and leverage rates. In the stock market, for example, 2:1 is a typical ratio, while futures contracts are often traded at a 15:1 leverage. In regards to Forex brokerages, margin trades are frequently leveraged at a 50:1 ratio, but 100:1 and 200:1 are also used in some cases. When it comes to cryptocurrency markets, the ratios are typically ranging from 2:1 to 100:1, and the trading community often uses the ‘x’ terminology (2x, 5x, 10x, 50x, and so forth).
Margin trading can be used to open both long and short positions. A long position reflects an assumption that the price of the asset will go up, while a short position reflects the opposite. While the margin position is open, the trader’s assets act as collateral for the borrowed funds. This is critical for traders to understand, as most brokerages reserve the right to force the sale of these assets in case the market moves against their position (above or below a certain threshold).
For instance, if a trader opens a long leveraged position, they could be margin called when the price drops significantly. A margin call occurs when a trader is required to deposit more funds into their margin account in order to reach the minimum margin trading requirements. If the trader fails to do so, their holdings are automatically liquidated to cover their losses. Typically, this occurs when the total value of all of the equities in a margin account, also known as the liquidation margin, drops below the total margin requirements of that particular exchange or broker.
3 Reasons Why You Should Try Margin Trading
- Exotic pairs — Margin trading offers access to exotic trading pairs. This involves two cryptocurrencies paired together (e.g. BTC and ETH). Instead of buying or selling the currencies themselves, the trader is speculating 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 an asset’s price 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.
- Multi-assets collateral — 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. So 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. Investing multiple assets as collateral allows traders to operate with more flexibility when opening trades.
- Arbitrage — 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 using 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 risk to the trader.
Five Tips on Margin Trading.
1. Learn about the interest rates: Just like a bank loan, there is a specific interest rate on the money borrowed by you from your stockbroker. You have to pay an annual interest on your borrowing to your stockbroker. Typically, a stockbroker charges around 8% interest rate, but it is always changing depending on your portfolio size. You have to know what interest rate you have to pay before you start margin trading. It will allow you to better control your costs while trading.
2. Buy gradually, not at once: The best way to avoid loss in margin trading is to buy your positions slowly over time and not in one shot. Try buying 30–50% of the positions at first shot and when it rises by 1–3%, add that money to your account and but the next slot of positions. If on the first go, your stocks fall by a certain percent, you won’t have to incur huge losses which you would have, if you have bought every position at the first go. This will keep your risk minimized until you make profits through your stocks.
3. Understand the terms: Before entering the trade of margins, you should clearly understand its terms and conditions and other regulations you have to follow while trading. Finding out something negative later into the trade can influence the whole performance of your portfolio, and you can lose money in the market. Always make sure that you read all the instructions provided by your stockbroker carefully before making a trade.
4. Avoid margin calls: Margin calls are never a good thing to have in your account. A margin call is a warning given by your stockbroker to you to add more money to your account to cover the losses or sell your stocks to compensate for the same. Every stock you buy under margins trading has a price level at which a margin call is triggered. Be sure to understand everything about the margin call before purchasing a stock.
5. Use stop loss orders: The best thing you can do to avoid losses and a margin call in your account is to use stop loss order with every stock you buy. It will allow the stockbroker to automatically sell your shares once it falls below a specific price level. A stop loss order is a perfect tool that can enable you to cut your losses and you won’t have to lose all of your money while margins trading.
Now the on-going promotion, Binance Margin-Funday Friday and all you need to know.
Funday Friday reward program rules
⋅Every Friday starting from Jan 14, 2022 09:00 (UTC).
— To be eligible for participation in this on going promotion, here are the few steps you should follow.
⋅To participate, you should have the Binance Margin account and complete KYC verification. You’re eligible if your daily average Margin trading volume is 1000 BUSD or more. Users from the restricted countries are currently not supported.
1.We created this program to share rewards. You can receive rewards based both on your Margin trading volume and total borrow amount. Here’s how it works. Every Friday, at 00:00 UTC+8, we take 20% of the income from Binance Margin transaction fees. 5% are distributed based on average borrow amount, and the other 15% are distributed based on average trading volumes. These rewards are in BUSD. And here’s how we calculate both types.
2.Rewards for your trading volume:
⋅Your reward depends on your Margin daily average trading volume divided by the daily average trading volume of all Margin users.
⋅We calculate income from Binance Margin transaction fees for the period between 16:00 (UTC) of the previous Thursday to 16:00 (UTC) of the next Thursday.
⋅Your daily average trading volume includes both cross margin and isolated margin. We snapshot volumes every Thursday for the period from 16:00 (UTC) of the previous Thursday to 16:00 (UTC) of the current Thursday.
⋅The average daily trading volume should be no less than 1000 BUSD. If your average daily trading volume is more than 50,000 BUSD, we calculate it as 50,000 BUSD.
3.Rewards for your margin borrow amount:
⋅Your reward depends on your daily average margin borrow amount divided by the daily average margin borrow amount of all Margin users.
⋅Your daily average borrowing amount includes both cross margin and isolated margin. We snapshot borrow amount every Thursday for the period from 16:00 (UTC) of the previous Thursday to 16:00 (UTC) of the current Thursday.
⋅The average daily borrow amount should be no less than 100 BUSD. If your average daily margin borrow amount is more than 100,000 BUSD, we calculate it as 100,000 BUSD.
*The 20% fee income and average daily net borrowing/trading volume will be calculated based on the price of the BUSD trading pairs of the eligible assets on Binance at 16:00 (UTC) each day within the promotion period.
1.Bonus will be sent to your spot account directly after you claim it. It will expire if you do not claim the bonus within 5 days.
2.Sub-accounts trading volume and borrow amount will be counted under the parent accounts.