Margin trading combines futures and spot trading elements to enable investors to trade cryptocurrencies with leverage. Just like spot trading (directly selling or buying an asset), margin involves the quick exchange of a cryptocurrency asset. The only difference is the capability to include leverage into these trades, increasing the trade value from two to ten times; the same is possible with futures contracts.
Basically, margin trading has its features beyond these two simple ideas. For example, investors should trade collateral (called margin) and then choose the needed leverage they want to invest (2x, 10x, etc.) to use leveraged funds. While doing margin trading, investors should be careful to promote changes that take place, particularly with cryptocurrency, because margin calls may happen frequently.
A margin call occurs when a trade goes adversely, potentially costing investors huge losses based on their leverage ratio. In such circumstances, the exchange will conduct a margin call wherein an investor has two choices: add collateral or Reduce position.
A trader can decrease the imaginary exposure of the position to avoid liquidation and, consequently, reduce the leverage of the position. On the other hand, the investor can also invest margin towards the trade-in, proving that they have adequate money to keep managing the trade.
Margin trading is utilized in multiple cases: one of the most famous use cases is hedging against other assets or a portfolio. Hedging comprises opening new positions that are adversely associated with current positions. Traders and investors hedge their portfolios as insurance for mitigating future losses.
While margin trading can aid you in earning huge revenues, it should not be done without applying tactics like stop-limit orders. Or else, small market shifts can be very expensive to an investor. Just like you may discover success with higher leverage, you may also acquire a loss of the same scale.
Why is Binance Margin good for you?
Exotic pairs: Margin trading gives admission to exotic trading pairs. That comprises two cryptocurrencies paired together (ETH and BTC). Rather than selling or buying the currencies themselves, the investor is wondering about the relative activity of the two. Investors can easily trade pairs with binance with leverage of up to ten times. Remember that the more unstable an asset’s cost is, the less liquidity the marketplace possesses for it. That is because the asset is less trustworthy to wager on, causing fewer trades to be founded in that marketplace.
Multi-assets collateral: exclusive to margin trading is the capability for traders to invest numerous assets as collateral to scrounge leverage. On binance, traders can do it in the cross-margin mode. Thus, rather than investing just Bitcoin into a BTC-based margin trade, traders can use their ETH and BTC, or USDT, BUSD, etc., to denominate their collateral. They invest numerous assets as collateral, enabling traders to run with more elasticity when opening trades.
Arbitrage: Margin traders can enjoy arbitrage chances when the unstable subsidy rate on futures pairs. For example, when the USDT/BTC perpetual funding rate is pessimistic, you can use margin to short the trade with USDT/BTC while using a long futures USDT/BTC endless trade to make a profit with lower risk. Therefore, investors are not essentially reliant on the costs of primary assets but are more alarmed by the markets’ behavior. Because the two trades placed in opposite directions, it doesn’t matter the way marketplace trends, reducing the trader’s risks.
Advice for protecting your asset when trading margin
1. Choosing a trustworthy platform like binance
Cryptocurrency exchanges are where investors can purchase, sell and translate different cryptocurrencies. They are essential for cryptocurrencies to be trade. Some platforms give the most competitive speeds or rates, while others give focused financial products. You should select Binance because it is the best cryptocurrency exchange for lower charges as it features one of the most generous fee structures across all the trading exchanges. Binance is the biggest cryptocurrency exchange in the world by trading volume. Binance also gives discounts for using the company’s proprietary cryptocurrency (BNB) to sell and buy other coins.
2. Keep monitoring your LTV
The LTV (loan-to-value) ratio is an assessment to calculate lending risk. The ratio assesses the notional worth of a loan against the marketplace’s worth of its collateral. For example, a higher LTV ratio shows a higher monitory risk. Binance utilizes the LTV ratio to compute the risk altitude of your cross collaterals.
3. Use Cross Margin or Isolated Margin with complete understanding
Now Binance supports Isolated Margin and Cross Margin trading. You can effortlessly choose Isolated or Cross Mode on the trading page. The margin shared to a position limited to a specific amount in an isolated margin. If the margin goes down the Maintenance Margin level, the positions will be liquidated. But, you can remove and add margin at will come under this method. The margin allocated between open positions with a similar settlement cryptocurrency in the cross margin. If required, a position will grab more margins from the overall sum balance of the equivalent cryptocurrency for avoiding liquidation.
Why should you prefer Margin Trading?
- Margin trading supports many cryptocurrencies like USDT, BNB, ETH, BTC, and more.
- Effectively dependably manage your transactions plus trade.
- Binance Margin Trading offer brilliant transaction depth.
- Get the perfect transaction charges for quality service.
- An insurance fund is the best feature in margin trading that safeguards your account when your assets-liabilities (equity) are less than 0 or the assets of the promised currency borrowing orders are in debt.
- To help users avoid extreme trading, margin trading has launched a cooling-off period function.
- And the risk fund feature safeguards your virtual assets from all the possible risks.
Margin trading can reveal investors’ opportunities engaged in other trade methods when margin trading with attention and purpose can become a lucrative and fun endeavor. People with enough experience in trading must perform trading in the margin. Additionally, investors should realize that involved risk in margin trading. Plenty of helpful tools such as stop-orders must be utilize whenever possible.