For investors to trade cryptocurrencies with leverage, the spot and futures markets are combined in the margin trading process. The capacity to use leverage in these deals, which multiplies the trade value by 2X to 10X, is the primary distinction. Depending on the trader’s leverage ratio, a margin call might result from a poor deal and cost them significant losses.
Although margin trading might result in significant gains, it should never be done without adopting risk control techniques like stop-limit orders. The use of margin trading as a hedge against a portfolio or other asset is one of the most common applications. Hedging is a sort of insurance to reduce future losses and includes creating new holdings that adversely correlate with current ones.
Wide variety of margin trading pairs
Access to exotic trading pairs is made possible through margin trading. This involves combining two cryptocurrencies (e.g. BTC and ETH). Traders can make predictions about how these digital assets will perform to one another rather than purchasing or selling them. Trading pairs on Binance allows for up to 10X leverage. Remember that the market will hold less liquidity for a token the more volatile it is. This is because there are fewer transactions established in that market. After all, the asset is less trustworthy to wager on.
Margin trading is the only financial product that allows consumers to pledge various assets as security for borrowing leverage. This is possible on Binance by using the cross margin mode. Investors can utilize their BTC and ETH, or BUSD, USDT, and so on, to denominate their collateral instead of just allocating BTC into a BTC-based margin deal. Trading positions may be opened with greater flexibility when different assets are used as collateral.
When the funding rate on futures pairs is unstable, margin traders might profit from arbitrage possibilities. For instance, users can utilize margin to short the trade using BTC/USDT while making a long futures BTC/USDT perpetual trade to generate money with no risk when the BTC/USDT perpetual funding rate is negative. As a result, traders are less concerned with the price of underlying assets and more focused on the behavior of the markets. Since the two transactions are set in opposition to one another, it doesn’t matter which way the market is moving, lowering the trader’s risks.
Binance retains the right to modify the range of borrowable assets to maintain asset security. The maximum number of digital assets that one user may borrow for each cryptocurrency is referred to as the Maximum Amount of a Single Margin Loan. The predetermined maximum total amount of Cross Margin Loan that the user is permitted to take out as well as the Platform’s risk control policies will be taken into consideration when calculating the Maximum Amount of Single Margin Loan.
Interest on a Margin Loan will start to accumulate as soon as it is successfully advanced and the borrowed digital assets are transferred to the User’s Cross Margin Account. The User may engage in cross-margin trading in the approved trading pairs using the lent digital assets.
Binance Isolated Margin customers who pay with BNB receive a 25% reduction on regular trading costs. This feature may be enabled by going to [User Center] – [Dashboard] – [Your Trading Fee Level]. If users have previously activated the [Use BNB] for paying fees (25% discount) feature, no additional action is required.
Users must have sufficient BNB in their Spot Wallet balance to cover the Isolated Margin trading expenses. They will not be able to obtain the 25% discount unless they do so. On the Isolated Margin trading page, users must first pay trading costs at the usual rate. After that, users’ Spot Wallets will be hourly charged the discounted trading costs for utilizing BNB, and any fees already paid will be credited back to their Isolated Margin accounts.
Please be aware that the trading costs will be immediately refunded to users’ Spot Wallet if the associated Isolated Margin account is closed at the time of the BNB trading fee refund procedure.
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Source: Market Business News