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What is Margin? How to use Margin Trading on Binance

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What is Margin? How to use Margin Trading on Binance

What is margin?

Margin is a form of margin trading, also known as leveraged trading, which helps traders to expand trading volume for investment activities taking place in the financial markets.

For the stock market, you can call Margin as you borrow more money from the floor to raise the trading level and mortgage the trading level by the amount of shares you buy. As for the crypto market, Margin is when you borrow more money from the exchange to increase the transaction level and mortgage it with the token you buy.

I will take an example of Margin for easy understanding as follows: Currently you have 1 billion dong, you borrow another 1 billion from the bank to buy a house worth 2 billion. At that time, you used financial leverage to raise the possibility of buying a house to 2 billion.

After a period of time, the value of the house increases to 4 billion, you sell that house, pay the bank debt 1 billion capital, your remaining amount will be 3 billion, of which 1 billion of the original capital and 2 billion money. word.

Thus, thanks to the use of leverage, you have bought a house with double the original value. It is an effective form of Margin trading.

What is Margin? How to use Margin Trading on Binance

Margin’s role

Margin has a certain meaning for both traders and exchanges.

For traders:

Margin allows them to borrow an additional amount from the exchange to increase their capital. This is especially useful for traders with small capital but want to optimize profits.

Margin investment can be very profitable in case the trader correctly predicts the market trend. It is certainly higher than the interest rate and floor fees that traders pay on their margin loans.

For exchanges

Margin not only helps them attract more traders interested in using the exchange, but also brings in profits from margin lending interest rates. Imagine, using margin to borrow assets is similar to borrowing cash. The loan requires a mortgage attached and the periodic interest you pay. Whether your loan is profit or loss, the broker will still receive back its original principal amount plus loan interest and other taxes and fees related to the margin order you open.

Advantages – Disadvantages of Margin

Advantages

Trading with limited capital and high profit opportunities: Traders with limited capital have the same opportunity to profit as traders with large capital. Besides, if the position is successfully closed, the trader will have a chance to earn a much higher profit than usual.

Example: A trader with a capital of $1,000 can open a position of $100,000 with 100x leverage. If the market moves positively by only 5%, that account will make a profit of $5,000. If a $1,000 trading account were not leveraged, it would only earn $50.

Profit even when the market is downtrend: Margin trading also allows traders to make profits when the market is trending down by opening short positions.

Example: A trader expecting a major pullback might commit part of their portfolio to a short position in order to profit off the potential loss incurred by a pullback.

Defect

Risks from cryptocurrency price fluctuations: Cryptocurrencies have a large and unpredictable price range. In case the coin price increases, the trader will have a lot of profit, but if the price goes in the opposite direction, the trader will lose more than without using margin.

Risks from investors themselves: Market analysis skills, inaccurate prediction of cryptocurrency price trends, and traders using high leverage leverage. When market movements go against expectations, the loss will be even heavier.

Risk of position liquidation: When the market goes against your prediction and the balance in your margin account is not enough to maintain your position, your order may be forced to liquidate and you will lose your deposit his original. Not to mention the fees that can be incurred when making a margin order that can make you lose more.

Some terms to know when joining Margin

Position: Margin trading has 2 positions, Long and Short. A long position is opened when you predict that the cryptocurrency value will increase. Short position is the opposite, you are predicting that the price of the cryptocurrency will drop.

Initial Margin: The minimum amount you need to deposit to open a position. For example, you borrow 10 BTC and the initial deposit is 60%, you need at least 6 BTC (60% x 10 BTC) to borrow.

Maintenance Margin (maintenance margin): The amount you need to keep in your account to maintain your position if you don’t want to be liquidated/burned out.

Leverage/leverage: Using leverage, you can trade with x times your capital.

Liquidation/Account Fire: occurs when the amount of loss exceeds the allowable limit. If you are long, the exchange will sell all the coins you bought earlier at the market price (which is very low at the moment) and return the balance to you. If you are short, the exchange will buy enough coins you borrowed before at the market price (which is very high), then the balance will be returned to your account.

Margin Call: A notification when your account is about to be liquidated, sent to you by email/SMS for you to decide: partially cut your loss or inject more money into your account to maintain.

LIQ Price: Estimate when the price reaches this mark your account will be liquidated.

P/L: Estimate your profit and loss according to current market orders. P/L % is profit and loss in %.

P/L fee/Funding Cost: Your loan fee.

How does margin work?

A margin trade will always have two positions, Long and Short . A long position reflects the assumption that the price of the asset will go up, while a short position assumes the price of the asset will fall. To put it simply, if you think the price of a coin will increase, open a long position and vice versa.

When starting margin trading, you will be required to provide an initial margin to open a position. This initial margin is closely related to leverage. In other words, a margin trading account is used to create leveraged trades, and leverage describes the ratio of the borrowed amount to the margin amount.

Example: To open a $100,000 trade with 10x leverage, you will need to deposit $10,000 of your capital.

Your profit will depend on your initial deposit and the leverage you choose. Of course, different trading platforms will offer different levels of leverage. Some platforms offer pretty low leverage, around 2x, 5x, 10x. While some other platforms may offer up to 100x leverage.

When you open a position and borrow money from the broker to trade, the broker takes measures to reduce their risk of loss. So, when the market goes against your prediction, the broker may ask you to increase your collateral to secure your position.

If the balance is not enough, the exchange will issue an order to close your trading position. It’s called a margin call and it happens when your loss drops below a certain level. Most exchanges will notify you, but because the order is usually executed very quickly, you also need to monitor your margin regularly.

When the price hits the liquidation price, the exchange will automatically liquidate the order to recover the capital you borrowed before. The amount of loan loss used for trading will be deducted directly from your principal amount.

Margin trading example

What is Margin? How to use Margin Trading on Binance

Margin Trading

Let’s say, the amount of capital I have is $10,000. BTC price is currently at $1,000 and I predict BTC to rise to $1,100.

If trading Spot Trading, when the price rises to $1,100, I will make a profit of $1,000. But I want to maximize profits, so I will open a Long order with a leverage of 10x .

=> That means I have created an order to buy BTC at $1,000 with volume of $100,000. In essence, I borrowed an additional $90,000 from the floor . At this time, the amount of BTC I have is 100 BTC. If BTC rises to $1,100 and I close a Long order, I will have a profit of $10,000 compared to $1,000 if I trade normally after I have paid back the loan to the exchange (not yet deducted).

In the opposite case, BTC price drops to $900 and hits the liquidation price. At this point, the exchange will sell all my 100 BTC at $900 and I have to pay back all of the $90,000 borrowed to the exchange. My account is now empty. That is not including the interest to be paid. This case is called account fire .

When to use Margin?

Margin gives you the opportunity to earn a huge amount of profit. When done smartly, you can make up to 100 times more profit than regular spot trading, both when the market is in an uptrend or downtrend. However, with great profits comes a high risk. Therefore, you should only use margin when meeting the following requirements:

  • You are an experienced trader, know the principles of technical analysis, read charts, understand the mechanism and trend of the market. For new traders, who do not yet understand how margin works in particular and the cryptocurrency market in general, it is absolutely not advisable to use Margin for big profits.
  • When the market shows clear, steady signs of up or down. Absolutely do not use Margin during the time when the market is moving sideways or there are unclear signals.
  • Margin will be an effective tool in short-term transactions. The use of Margin in the long term may not be effective and carries a lot of risk of loss.
  • You should only margin trade with coins with high liquidity .

Isolated Margin User Guide (Web)

1. Trading

1.1 Login

Log in to the main Binance website at https://www.binance.com/. In the menu at the top of the page, go to [Spot] – [Margin] to navigate to the Margin trading interface. Click [Isolated] in the menu on the right and select your desired trading pair (such as ZRXUSDT for example).

What is Margin? How to use Margin Trading on Binance

Note: You can refer to the [Margin Trading Steps] or [Margin Tutorial] videos found in the middle of the trading interface page to learn more about Margin trading.

1.2 Activation

In the trading interface, confirm the trading pair and margin rate, read the Terms of Service, then click [Open Now].

What is Margin? How to use Margin Trading on Binance

1.3 Transfer

In the trading interface, click [Transfer] on the right-hand side of the page.

In the Transfer pop-up window, confirm that you are transferring from your [Spot Wallet] to an Isolated Margin account, such as [ZRXUSDT Isolated]. Select the [Coin] and input the [Amount] and click [Confirm].

What is Margin? How to use Margin Trading on Binance

Note: Click ? to switch between [ZILBTC Isolated] and [Spot Wallet].

1.4 Borrowing

In the trading interface, click [Borrow] on the right-hand side of the page.

In the Borrow/Repay pop-up window, select the [Coin] and input the [Amount], then click [Confirm Borrow].

What is Margin? How to use Margin Trading on Binance

1.5 Trading

In the trading interface, select the order type by clicking [Limit], [Market], [OCO], or [Stop-limit]. Select [Normal] trading mode; input the [Price] and [Amount] you want to buy, then click [Buy ZRX].

What is Margin? How to use Margin Trading on Binance

Note: In the trading interface, you can merge borrowing + trading or trading + repayment by selecting [Borrow] or [Repay] mode when you [Margin Buy ZRX] or [Margin Sell ZRX].

1.6 Repayment

After realizing profits, its time to repay the debt (borrowed amount + interest). In the trading interface, click [Borrow] on the right-hand side of the page, just like before.

In the Borrow/Repay pop-up window, switch to the [Repay] tab page, select the [Coin] and input the [Amount] that needs to be repaid, and click [Confirm repayment].

What is Margin? How to use Margin Trading on Binance

2. Wallet

Go to the Margin Account interface by navigating to [Wallet] – [Margin Wallet] in the drop-down menu at the top of the page.

Select [Isolated Margin] and enter a [Coin] (such as ZRX) to filter the trading pairs. Here you can view your assets and liabilities.

What is Margin? How to use Margin Trading on Binance

Note: In the Margin Account interface, you can also view your assets, liabilities, and earnings under [Positions].

3. Orders

Enter the Margin Order interface through [Orders] – [Margin Order] in the drop-down menu at the top of the page.

Select [Isolated Margin] to view your Order History. You can filter trading pairs by [Date], [Pair] (such as ZRXUSDT), and [Side].

What is Margin? How to use Margin Trading on Binance

Note: In the Margin Orders interface, you can also view your [Open Orders], [Trade History], [Borrowing], [Repayment], [Transfers], [Interest], [Margin Calls], and [Liquidation History], etc.

Margin Trading Express Guideline

Four steps for margin trading:

What is Margin? How to use Margin Trading on Binance

Step 1: Enable margin account

Choose [Trade] →[Basic] at the navigation panel, select [Margin] tab at any margin trading pair, then click [Open margin account].mceclip0.png

What is Margin? How to use Margin Trading on Binance

Enable the margin account by clicking [I understand] after reading the Margin Account Agreement.

What is Margin? How to use Margin Trading on Binance

Step 2: Transfer in

Select [Transfer] to transfer from spot wallet to margin wallet.

What is Margin? How to use Margin Trading on Binance

Select the coin you want to transfer, enter the amount and click [Confirm transfer] to transfer.

What is Margin? How to use Margin Trading on Binance

Step 3: Borrow/ Trade

Select [Borrow] to perform Margin Buy or Margin Sell.

What is Margin? How to use Margin Trading on Binance

Step 4: Repay/ Trade

Select [Repay] to perform Margin Buy or Margin Sell.

What is Margin? How to use Margin Trading on Binance

How to enable a Margin Account on Binance

To enable a Margin account on Binance, log into your Binance account, click on [Wallet] – [Margin Wallet].

For the safety and security of your account, its necessary to enable at least one 2 Factor Authentication (2FA) method.

What is Margin? How to use Margin Trading on Binance

Notes:

  • At last 10 sub-accounts can open margin account
  • Users can only borrow up to one BTC estimated asset under 5X leverage.
  • Sub-accounts cannot adjust the margin leverage to 5X

Binance Margin Level and Margin Call

Margin trading allows you to add leverage to your positions in order to increase your potential earnings and profits. Binance uses the margin level to evaluate the risk level of your margin account.

1. Margin level of Cross Margin

1.1 Users participating in Margin Loans may use the net assets in their Cross Margin Accounts in Binance as the Collateral, and the digital assets in any other accounts are not included in the Margin for cross margin trading.

1.2 The Margin Level of a Cross Margin Account = Total Asset Value of a Cross Margin Account/(Total Liabilities + Outstanding Interest), where:

Total Asset Value of a Cross Margin Account = current total market value of all digital assets in the Cross Margin Account

Total Liabilities = the current total market value of all outstanding Margin Loans in the Cross Margin Account

Outstanding Interest = the amount of each Margin Loan * the number of hours as loan time by the time of calculation * hourly interest rate – deduction/paid interest.

1.3 Margin level and related operation

Leverage 3x

When your margin level>2, you can trade and borrow, and transfer assets to the exchange wallet;

When 1.5<margin level≤2, you can trade and borrow, but you can’t transfer funds out of your margin account;

When 1.3<margin level≤1.5, you can trade, but you can’t borrow, neither transfer funds out of your margin account;

When 1.1<margin level≤1.3, our system will trigger a margin call and you will receive a notification through mail, SMS and website to inform you to add more collateral (transfer in more collateral assets) to avoid the liquidation. After the first notification, the user will receive the notification per 24 natural hours.

When margin level≤1.1, our system will trigger the liquidation engine and all assets will be liquidated to pay back the interest and loan. The system will send you a notification through mail, SMS and website to inform you that.

Leverage 5x (only supported in the master account)

When your margin level>2, you can trade and borrow, and transfer assets to the spot wallet;

When 1.25<margin level≤2, you can trade and borrow, but you can’t transfer funds from your margin account to your exchange wallet;

When 1.15<margin level≤1.25, you can trade, but you can’t borrow, neither transfer funds from your margin account to your exchange wallet;

When 1.05<margin level≤1.15, our system will trigger a margin call and you will receive a notification through mail, SMS and website to inform you to add more collateral (transfer in more collateral assets) to avoid the liquidation. After the first notification, the user will receive the notification per 24 natural hours.

When margin level≤1.05, our system will trigger the liquidation engine and all assets will be liquidated to pay back the interest and loan. The system will send you a notification through mail, SMS and website to inform you that.

2. Margin level of Isolate Margin

2.1 The net assets in the user‘s isolate margin account only can be used as the collateral in the corresponding account, and the assets in the users other accounts(cross margin account or other isolated accounts) couldnt be calculated as collateral for it.

2.2 The margin level of the isolated account = the total value of assets under the isolated account / (total value of liabilities + unpaid interest)

Among them, the total value of assets = the total value of the underlying assets + nominal assets in the current isolated account

Total liabilities = The total value of the assets that have been borrowed but not returned in the current isolated account

Unrepaid interest = (the amount of each loaned asset * the time length of the loan * hourly interest rate)- repaid interest

2.3 Margin level and Operation

When the Margin Level (hereinafter referred to as ML) 2, users can trade, can borrow, and the excess assets in the account can also be transferred to other trading accounts. But the ML still needs to equal or greater than 2 after transferring out to ensure normal asset transferring out functions.

Initial Ratio (IR)

IR is the initial risk rate after the user borrows, and there are different IRs according to different leverage. For example, the IR will be 1.5 under the 3x leverage with full borrowing, the IR will be 1.25 under 5x leverage with full borrowing and the IR will be 1.11 under 10X leverage with full borrwing.

Margin Call Ratio ( MCR )

When MCR

The MCR will be different according to different leverage. For example, the MCR for a 3x leverage is 1.35, for 5x leverage, it will be 1.18 and for 10x, it will be 1.09.

Liquidation Ratio (LR )

When LR

When ML ≤ LR, the system will execute the liquidation process. The assets held in the account will be forced to sell to repay the loan. At the same time, users will be notified via email, SMS, and website reminder.

LR will vary according to different leverages. For example, the LR for 3x leverage is 1.18, for 5x leverage, it is1.15 while for 10x leverage, it is 1.05.

Margin Trading Index Price

The Margin Trading Price Index is calculated in the same way as the Futures Contract Price Index. The Price Index is a bucket of prices from the major spot market exchanges, weighted by their relative volume. The Margin Trading Price Index is based on the market data of Huobi, OKex, Bittrex, HitBTC, Gate.io, Bitmax, Poloniex, FTX, and MXC.

We also take additional protective measures in order to avoid poor market performance caused by interruptions in Spot Market Prices and connectivity problems. These protective measures are as follows:

  • Single price source deviation: When the latest price of a particular exchange deviates more than 5% from the median price of all sources, the price weight of that exchange will be set to zero temporarily.
  • Multi price source deviation: If the latest price of more than 1 exchange shows a deviation greater than 5%, the median price of all sources will be used as the index value instead of the weighted average.
  • Exchange connectivity problem: If we can’t access the data feed of an exchange that has had trades updated in the last 10 seconds, we will consider the last and most recent price data available to calculate the price index.
  • If an exchange has no transaction data updates for 10 seconds, the weight of this exchange will be set to zero when calculating the weighted average.
  • Latest Transaction Price Protection: When the “Price Index” and “Mark Price“ matching system is unable to secure a stable and reliable source of reference data, the index will be affected for contracts with a single price index, (i.e. the Price Index will not change). In this case, we use our “Latest Transaction Price Protection” mechanism to update the Mark Price until the system is back to normal. The “Latest Transaction Price Protection” is a mechanism that temporarily switches the Mark Price to match the latest transaction price of the contract, which is used to calculate unrealized profit and loss and liquidation call level. Such a mechanism helps prevent unnecessary liquidation.

Notes

  1. Cross rate: For indexes without direct quotations, the cross rate is calculated as the composite price index. For example, when combining LINK/USDT and BTC/USDT to calculate LINK/BTC.
  2. Binance will update the price index components from time to time.

How to long on Margin Trading

“Long”, it’s when you buy at a low price and then sell at a higher price. In this way, you can earn a profit from the price difference.

Click the video and learn how to long on margin trading.

How to short on Margin Trading

“Short”, it’s when you sell at a high price then buy at a lower price. In this way, you can earn a profit from the price difference.

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Cryptocurrency Token vs Coin. What’s the difference?

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Cryptocurrency Coins:

Tokens are the digital assets issued by a particular project and can be used as a method of payment inside the ecosystem of that project. A token doesn’t have a blockchain of its own. Tokens have all the characteristics of a coin and additionally, they provide their owner a right to participate in the network of the project they belong to. The tokens are limited to time and place. For example, a cinema ticket is a real-life token with which you can watch a movie at a certain place and time but the same ticket can not be used to pay your bill at the hotel.

Cryptocurrency Tokens:

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Facebook metaverse allows users to make their own world with whatever they want. They can be, in that world, whatever they wish to be. This also changes the way the Ads will be served.

Facebook has been in news lastly for collecting data, and with the launch of the metaverse, privacy will be the biggest challenge for people. Just say, for example, someone hacks into your account of the metaverse, it will not be only limited to seeing messages or posting spam, that person can literally do whatever you do in that world – just let that sink in.

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Your first experience with buying bitcoin doesn’t have to be a bad one. If you follow this guide step-by-step, you’ll learn how to buy bitcoin in no time.
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HOW TO BUY BITCOIN FOR THE FIRST TIME (STEP-BY-STEP)

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First, these methods are ordered from least fees to most fees but you can typically get your bitcoin faster by paying higher fees. For example, bank accounts ususally take several days to verify and often have zero fees, but a credit/debit card can be verified instantly or may not require verification and you can receive your bitcoin same day.

Second, this order represents my experience with buying bitcoin and might not be applicable to every person in every situation.Bank account or wire transfer (No fees)

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