It is no news that the cryptocurrency space is very volatile. For instance, no one anticipated Bitcoin to rapidly rise from less than $20,000 to over $23,000 in less than 24 hours on December 17, 2020. However, with such volatility comes the chance to double or even triple your investment. On the flip side, you can additionally rapidly lose your investment. In traditional finance, margin trading is one of the approaches merchants or traders can make more income without having the required capital. Thankfully, the same chance is available in the cryptocurrency space.
In this article, I’ll share with you how Binance margin trading works, its benefits and disadvantages, and some recommendations to assist you step up your game.
Without further ado, let’s get it on…
Binance Margin Trading
Margin trading is a technique of trading assets (which in this case are crypto assets) using borrowed money from a third-party. This offers you the potential to enter into positions larger than your incumbent account balance. In comparison with spot trading that permits you to make income from only your current crypto assets, margin trading lets in you to increase your trading results via giving you access to more capital.
Whilst investment brokers act as the third-parties in standard markets, the borrowed cash in cryptocurrency margin trading are supplied by different traders. In return for providing liquidity, these merchants earn interest based on market demand for margin funds.
Binance margin trading is a game-changer in the cryptocurrency space. Beyond top-tier digital assets such as Bitcoin, Ethereum, and Ripple, Binance margin trading permits you to leverage trading on several other highly-volatile altcoins. Traders can Margin Long or Short based on the course of the market.
How Does Binance Margin Trading Work?
As in other markets, when a margin trade is initiated on Binance, you will be required to commit a percentage of the total order value. Your initial funding is acknowledged as the “margin”. For Binance Margin Trading, the leverage is restricted to 3x or 10x. So, you can open a $30,000 trade by depositing $10,000 as collateral.
Select the cross margin or isolated margin tab from the trade section, and then open the corresponding margin account.
Transfer the required collateral from your spot wallet to your margin wallet.
Place an order and borrow funds automatically.
Once your trade is fulfilled, place an order to repay the borrowed amount.
The important advantage of Binance margin trading is the capacity to make large earnings from a significantly smaller investment. It is additionally a useful tool in diversifying your portfolio. As a trader, you can open various lengthy or brief positions with pretty smaller amounts of investment capital.
Finally, talking about how sluggish blockchain networks can get during massive price actions, margin trading makes it effortless for you to easily open a position without having to wait for massive transfers or network confirmations.
Cons
As for its cons, margin trading is potentially risky. It can exponentially amplify your losses in the same way it can extend your gains. Losses can exceed your initial investment, not like in ordinary spot trading. This is why margin trading is not recommended for total beginners. And if you determine to get your fingers dirty, don’t forget about to set up proper risk management techniques and risk mitigation tools, such as stop-limit orders.
5 pointers for crypto margin trading
To wrap up this article, right here are 5 pointers that will assist you in your journey.
1. Start small:
There is no use putting all your funding into a margin trade. It is very volatile and could go away you in serious losses.
2.Understand technical analysis:
While I agree that the crypto market runs on speculations, you have to additionally learn to back it up with charts. As a beginner, before you make any margin call based on market reactions, recognize what the charts say. Don’t fall prey to wild speculation.
3. Make Stop Loss your friend:
This is the last risk management tool in margin trading. Peradventure your trades commence to move in the wrong course whilst you are asleep; a stop loss can assist you forestall enormous losses.
4. Spread out your buy orders:
Don’t go all in at the same time. Instead, take positions at extraordinary times in the day or week. This lowers your danger and helps you keep a more balanced portfolio.
5. Have a strategy and stick to it:
Before you margin trade make sure you have a plan. Develop a strategy that works for you and stick to it.