Binance is one of the famous crypto exchange platforms in the world. It has become popular because of its high security and the features and functionalities that provides for its users.
Binance provides various methods for the traders that are trading in the exchange. Before starting trading in Binance or the exchanges like Binance or any other exchanges that provide different methods for trading you better get familiar with these methods and know their features to trade with them better and lose money less. In this article, you are going to read about Binance margin trading.
What is Binance Margin Trading?
Binance Margin trading is a trading method that allows you to borrow funds from a broker or a third party to have a greater amount of capital to leverage your positions by doing this you will have larger profits on successful trades but you must pay attention that if the trade is not successful and the price is going against your loss will also be large same as your expected profit always remember margin trading as like a double sword and you must be very careful with that, especially in the cryptocurrency market which is inherently very volatile. In other markets usually, brokers provide the funds but in the cryptocurrency market, the funds are usually provided by other traders or investors who earn interest on their capital, for example here on Binance, traders and investors who take part in Binance earned investment solutions their capital is used for funding your margin account here. Actually, you borrow money from those people and pay interest to them.
Margin Trading VS. Future Trading
Margin and Futures trading allows users to increase their profits by using leverage but what is the difference between these two types of orders?
Margin traders place orders to buy or sell cryptos in the spot market. this means that margin orders are matched with orders in spot markets. on the other side in futures trading, traders place orders to buy or sell contracts in all derivatives markets. in simple words, margin and futures are two different markets.
Both margin and futures will charge users a trading fee. and margin’s trading fee is the same as the spots fee.
In Binance margin traders have access to 3x- 10x leverage with assets provided by the platform. the leverage multiplier is based on the situation in which you are using isolated margin or cross margin mode. on the other side futures trading offers more leverage.
Binance futures trading offers risk management mechanisms such as insurance funds to protect the liquidity and fund users have.
Cross Margin VS. Isolated Margin
Before knowing how the margin account work let’s see what are cross margin and isolated margin are and what’s the differences? Because these are different wallets and before transferring you must decide if you want to open your position in cross margin mode or isolated margin mode. In cross margin mode you can start the transaction with the 3x maximum of your money, you have one margin balance and the entire debt margin balance is shared for all your open positions so in this mode one position that is in profit can help another position that is near liquidation in cross margin mode you actually average the risk on all positions, however, by doing this you actually risk your entire margin balance and pay attention that all of your open positions also act as collateral and indicate that your margin risk level reaches to liquidation points all your open positions will be liquidated to cover the debts, interest and other fees. I’ll explain more about the liquidation later.
In an isolated margin, you assign different margins for different positions and this helps you to limit the risk of losing the entire margin balance and liquidation of all your open positions instead you only lose the isolated margin for that particular position.
First, we choose the isolated wallet. We click on the transfer window, and the transfer window opens. In this window, you will choose the wallets and the currencies you want to transfer. In this window, you can see how much USDT you have available to transfer. Here you can enter your desired amount.
We have two ways to borrow funds from trading, one way is when you’re placing an order select borrow and binance will automatically borrow funds for you if the size of the order is greater than your initial fund and the other way is here with the help of another button borrow first we borrow and then we start trading. So one borrowing is before trading one borrowing is at the same time when you are placing an order.
Let’s imagine we have 100$ in a margin account in cross 3x mood, we open a position.
To close this position we have to pay a transaction fee and some interest for borrowing 200$ to the exchange. Imagine the combinations of these equals 5$.
So 5$ is the debts and 95$ is our fund in this position.
In an isolated mood, if the market price moves against our position until it reaches 95$. The exchange will close this position and take back its debt and the whole fund is taken as the loss and the fund in our account will be zero.
But in the cross if the market price starts to fall the exchange will not close the position it will use other currencies and digital assets until the end of them. Then the exchange will liquid you
This is the main difference between cross and isolated moods.
If you are in a group of people who are thinking of developing an exchange, Binance clone script is a good choice to develop an exchange website like Binance because it has all the main features and functions of Binance. You can ask your crypto exchange software development company to implement extra features in your exchange platform.