Binance Margin: How does it work and how to trade on it? [3 tips]

Harsh Sangwan

4 years ago

If you are an active trader and would like to increase your profits without committing more capital, there is an interesting way to do it. All you have to do is use leverage. There are plenty of platforms on the market that allow you to trade cryptocurrencies by leveraging your positions. However, the biggest and safest one is the Binance exchange, more specifically its product Binance Margin. In today’s article, we will explain to you what Binance Margin is and how to use this feature effectively. What’s more, we’ll introduce the Binance Funday Friday promotion, which allows you to reap even more benefits from your trading. So, here we go!

What is margin trading?

Binance is the largest cryptocurrency exchange in the world processing the largest volumes. However, in addition to the traditional spot markets, the platform also offers many other advanced products and features. One of these is Binance Margin, a feature that allows you to trade cryptocurrencies using funds provided by a third party.

Compared to spot trading, margin trading allows you to generate more profits. This is because it gives you access to leverage. However, it is worth remembering that as the potential earnings increase, so does the risk. In the event of a trend that does not match your predictions, it is possible that your position will be liquidated and you will lose all your money. So trading with leverage is a double-edged weapon. You can compound your profits as well as your losses.

Margin trading is particularly popular in low volatility markets. Low volatility means that it is actually necessary to use leverage to make profits – especially with a small investment. This is why margin (leveraged) trading is also used in other markets besides cryptocurrencies, such as stocks, commodities or currencies (forex).

Trading on Binance Margin – an example

Let’s assume you want to open a position with $10,000, the bitcoin price is also $10,000, and you want to buy BTC with a leverage of x3.

Collateral: The collateral is the original amount of your investment. If you buy 3 BTC at $10,000 each and use x3 leverage, your collateral will be $10,000 and your total initial exposure will be 3 BTC ($30,000). This means that the remaining US$20,000 needed to complete the trade has been borrowed.
Margin Level: (Current Total Exposure / Borrowed Amount) = 30,000 / 20,000 = 1.5

Suppose the price of bitcoin falls to USD 9,000. In that case:

Your total exposure would be 3 x 9000 = 27,000 USD
Margin level: 27,000 USD / 20,000 USD = 1.35
If you closed the trade at that point, your position would generate a $3,000 loss, which is 3x more than on the SPOT market.

Suppose the price of bitcoin rises to USD 11,000. In that case:

Your total exposure will be 3 x 11,000 = 33,000 USD
Margin level: 33,000 USD / 20,000 USD = 1.65
If you closed the trade at that point, your position would generate USD 3,000 profit, which is 3x more than on the SPOT market.

All this assumes that the price of bitcoin has only changed by USD 1,000.

How to trade on Binance Margin – step by step guide

Trading cryptocurrencies with leverage on Binance Margin is very simple and intuitive. The whole process basically comes down to following just a few steps.

First of all, you need to have an account on Binance. If you do not already have one, you can create it by clicking on this link and then following instructions. Remember that in order to trade with leverage on Binance you must also succesfully pass KYC verification.
Once you have successfully created your account, log in.
Now in the top menu, hover over “Trade” and then click “Margin”.
You now need to transfer your funds from your Spot wallet to your Margin wallet to use them as collateral. To do this, click the “Transfer” button (as in the image below).
Once your Margin wallet has been filled, you are ready to trade. You can choose between “Cross Margin” or “Isolated” mode (more details in next sections). The maximum leverage for these modes is x3 and x10 respectively (this means that you can open a position with up to 3 or 10 times your equity). In case you want to play a long position, click on “Buy BTC”. If you anticipate that the price of BTC will fall, you can also place a short position by clicking “Sell BTC”.

How to trade effectively on Binance Margin?

Margin trading is not at all as simple as it may seem. However, there are a few strategies that will help you reduce your risk and potentially increase your profits:

Watch the Margin level

It is important to watch your Margin level. This is because Binance uses it to assess the risk associated with your position. By closely monitoring this indicator you can avoid liquidating your position and therefore reduce your losses.

More detailed information regarding margin levels and margin calls can be found on the official Binance website. It is a good idea to become more familiar with these before you begin leveraged trading.

Take advantage of the cooling-off period

Binance allows you to take advantage of the so-called cooling-off period while you are margin trading. It allows you to suspend all your trading activities for a specific period of time (1 day, 3 days or 1 week). During this time, the funds in your Margin wallet cannot be used to borrow any cryptocurrencies. Why use the cooling-off? It allows you to control your movements in stressful situations and prevents you from making rash, irresponsible decisions.

Remember that once the cooling-off period is activated, you can no longer reverse your decision. It will only end after the time you have set. In the meantime, all trading functions and confirmation buttons will be deactivated.

To enable the break period, simply go to the Binance website, click “Wallet” > “Margin” > “More Data” > “Cooling-off period”. There is also an alternative method. Go to the Binance Margin page, click the “⋮” icon and then “Coling-off period”. The next step is to select the duration of the break period (1, 3 or 7 days) and click the “Confirm” button.

Select Cross Margin or Isolated Margin mode

Binance allows you to use two Margin trading modes:

Isolated mode is independent for each trading pair. This means that each trading pair has its own independent account. Thus, only specific cryptocurrencies can be transferred, stored and borrowed on a single account. For example, on the isolated BTCUSDT account, only BTC and USDT are available. Moreover, in this case the position is independent for each trading pair. If a collateral needs to be added, it will not be added automatically. What more, when liquidation occurs on one position, it will not affect the others.
Cross Margin mode is the complete opposite of Isolated mode. It is distributed between different user Margin accounts. What does this mean? That each user can open only one Cross Margin account, and all trading pairs are available on this account. Assets are also split between all positions, and the collateral level is calculated based on the total value of assets and debt. Furthermore, if liquidation occurs, all positions are liquidated, not just one. For example, if you open several positions and one of them starts to lose heavily, you may have to close other positions as well.

For more on the differences between Cross Margin and Isolated mode, check out the official Binance website. The whole thing is explained in an easy way with concrete examples.

Funday Friday promotion

Some time ago Binance also created a new promotion that allows you to earn extra money from Margin trading on Binance called Funday Friday. What does it consist of? It allows qualifying users to receive a share of 20% of the revenue from trading on the platform. The reward is calculated based on the user’s average daily volume divided by the trading volume and loans of all qualifying traders.

The eligibility conditions for the reward are simple. You just need to have a Binance Margin account and pass the verification. You then need to trade 1000 BUSD or more per day with a loan of no less than 100 BUSD.

The Funday Friday promotion started on January 14 and will remain valid until further notice. This means that you will be able to earn additional funds once a week. You can find the exact rules and information on prize distribution at this link.