How to protect your assets when trading Margin?
Binance Margin: 600+ trading pairs. Responsible trading. Best trading fees. High-liquidity.
What’s Margin Trading in the Cryptoverse?
How about getting money to trade cryptocurrencies even beyond your actual investable capital? Enter (cryptocurrency) Margin trading. Simply by paying a stipulated extra fee and some interest, traders can multiply their profits (or losses) via borrowed money. Margin trading is a high-risk strategy mostly employed by professional cryptocurrency markets traders. Margin trading can reap you stupendous profits (or devastating losses). Yes, newbie traders are strictly advised to practice great caution during margin trading.
In cryptocurrency Margin trading, funds are borrowed from an exchange for trading purposes. Margin trading is also called “trading with leverage,” as in it traders exercise “leverage” on their trades, going over and above their actual capital. In that context, this article will shed light on what exactly margin trading involves and what protection measures should be followed.
The Binance Margin Interest Rate Reduction Promotion
Binance Margin officially announced its Interest Rate Reduction (IRR) promotion on 2022–03–21 11:00 AM (UTC). The ongoing (until further notice) IRR promotion is geared primarily towards lowering the interest rates for BTC, ETH, BUSD and USDT on Binance. In the IRR, users would reap discounted annual interest rates (AIRs) of about 0.8% alongside the stated assets. The IRR promotion facilitates availing up to 80% off on the Binance Margin interest rates.
The New Tiered Interest Rates for BTC, ETH, BUSD and USDT on Margin are as follows:
How to protect your assets when trading margin on Binance?
Select Binance as your trustworthy exchange platform:
- When it comes to trading margin in the Cryptoverse, there’s absolutely no contesting the trust and robust dependability of Binance. Having a really simple and straightforward sign-up process, Binance also offers free deposits, lowest transaction fee on any exchange, and 175+ digital assets. The funding methods available on Binance are Debit and Credit cards, wire transfer, bank account (ACH), etc. Binance is operational in over 100+ countries. Binance offers a host of cryptocurrency trading pairs, leading to its top trading volume across exchanges. While the transactions are swift on Binance, there are alluringly profitable on-site staking options available, as well.
- Keep monitoring your LTV: LTV or Loan-to-Value is essentially the loan ratio to the collateral value. Binance uses the LTV ratio to gauge the lending risk level of an individual (cross collaterals). In case your LTV is above the Liquidation LTV, the collateral would be compulsorily liquidated for loan repayment. A higher LTV would mean an elevated financial risk, and vice-versa. If the LTV ratio touches the Margin Call level, to mitigate the risk of liquidation, an SMS or an email would ensue with the margin call. This notification communication would be meant to ask you to increase the required collateral. If you don’t duly act upon the said notification, your collateralized assets would face a compulsory liquidation. The general formula used in Binance to calculate the loan amount or the collateral required is as follows:
LTV = Loan Amount / Collateral Amount x 100%.
Loan Amount = Principal + Interest
3. Use Cross Margin or Isolated Margin with full understanding:
Cross Margin and Isolated Margin tools are central to trading efficiency and profit management in the Cryptoverse. Margin is the amount needed to activate a leveraged position.
Cross Margin (CM): To prevent any possible liquidation event, the margin balance in its entirety gets shared across open positions in the Cross Margin mode. Upon activating the Cross Margin mode, it is quite possible that the trader might risk losing their entire margin balance and open positions. Cross Margin or Spread Margin uses the entire cryptocurrency fund balance for saving the positions from liquidations. In margin trading, either portions of realized profit and loss from other positions can assist in margin addition in weak positions.
The Cross Margin method assists traders inclined towards hedging their current positions. It also assists arbitrageurs not willing to get exposed on a particular side of the trade upon facing a liquidation. Unlike Isolated Margin, in Cross Margin, the sharing of margin and risk happens across the entire margin account. Only the cross margin account wherein access to all trading pairs is available will allow opening positions in Cross Margin trades. The calculation of margin level is done per the account’s total asset value and debt in the account. Liquidation, if at all, happens all across positions in that account.
Isolated Margin (IM): In IM, trader liability stays limited only to the initial margin. If at all liquidation happens, the balance available will not be added to either of the standing positions as a margin. The risk and the margin in each trading remains independent in Isolated Margin. Trading pairs on Binance come with independent Isolated Margin accounts (IMAs). It is also possible to register multiple IMAs for different pairs.
Geared primarily towards speculative trades (positions), the Isolated Margin essentially isolates the margin used by the positions. As a result, a limit is imposed (up to the initial margin set) upon the potential losses, to cushion non-performing trade speculations. A volatile market sees positions with high leverage get liquidated (losing equity) pretty quickly. Each IMAs margin level is calculated distinctly as per its asset and debt. In the case of a liquidation in either of the accounts, other isolated positions face no impact.
Now you might be wondering as to what strategy (CM or IM) would be optimal for achieving your trading objectives. Well, that decision would essentially depend upon your specific trading style (and specific market conditions). In case you intend to sustain your positions (through adverse market conditions) for a longer period of time while maintaining liquidation risk control, then Cross Margin is the optimal strategy.
Why is Binance Margin good for you?
Diverse trading pairs: Trading pairs involve two cryptocurrencies, e.g., BTC and USDT, BUSD and BTC, ETH and BTC, etc. Binance platform margin trading allows access to trading pairs with up to 10X leverage. An asset’s price volatility determines its market liquidity. Increased volatility signals reduced liquidity for the concerned asset in the market. An asset with high volatility turns out to be less dependable, resulting in fewer trades of it in the market.
Multi-Asset Collateral: Binance presents an avenue for its traders to invest multiple assets as collateral for leverage borrowing, in the Cross Margin mode. With this feature, traders can experience enhanced flexibility in opening trades. Using Multiple assets as collateral to borrow and trade with leverage on Binance Margin is possible. It is also possible for traders to use BTC as collateral in BTC-based margin trades. So, traders can open trades and operate with enough flexibility owing to no restrictions.
Cooling-off period: A Cooling-off Period function on Binance assists users stay away from trading excessively. During this period, users can suspend all margin trades for a specific (1 day, 3 days, or 1 week) period as required. In the Cooling-off period, traders cannot use margin accounts to borrow funds.
Insurance fund: There’s a Binance insurance fund that protects funds that safeguards your digital assets from various risks. The Binance insurance fund safeguards your account in case your equity falls below 0. It also helps when the pledged currency borrowing orders’ assets turn insolvent.
How to trade with margin on Binance?
- First, select a coin pair. Select a specific coin pair and review its last price.
- Set Spot or Margin trade direction. Trade seamlessly with spot or elevate profits with isolated and cross margin leveraging.
- Place your order. You can set a market order to buy or sell swiftly at the most appropriate price.
- Customize the trading interface by selecting your favorite theme, color and a layout of your liking.
It could possibly get easier for you to navigate through margin trading if you are well-aware of hedging and risk management strategies. But, still, exercise caution. Even being proficient in identifying market trends, charts, the entry and exit points, there would still exist some margin trading risk.
New to Binance? Register today!
Disclaimer: This article is meant for educational purposes only and should not be construed as investment advice.
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