How to open Binance’s Futures account and start leveaged trading?
How to use Leverage on Binance?
To start using the leverage when trading on Binance, you first need to open a Futures Contract Account.
After opening the Futures Account with Binance, you can start trading with tup to 1:125 leverage by following the steps below.
- Go to [Trade] – [Margin] from the top navigation bar.
- Click on [BTC/USDT] to search for the pair you want to trade.
- Click [Transfer Collaterals] below the candlestick chart.
- Select the wallet to transfer funds, the destination margin account, and the coin to transfer.
- Now go to the box on the right. Choose either [Cross 3x] or [Isolated 10x].
- Select [Buy] (long) or [Sell] (short) and the order type, such as a market order.
- You can buy BNB with leverage by entering the amount of USDT by [Total], or the amount of BNB to buy by [Amount].
What is leveraged trading on Binance?
Margin trading is a method of borrowing third-party funds to trade assets. Compared to regular trading accounts, margin trading accounts give traders access to more capital, allowing them to use leverage on their positions. Essentially, margin trading amplifies the results of a trade, increasing the trader’s return on profitable trades. With this feature of expanding trading results, margin trading is favored in low-volatility markets, especially the international foreign exchange market. This approach is also widely used in stocks, commodities and cryptocurrency markets.
In traditional markets, funds borrowed on margin exchanges usually come from investment brokers. However, in cryptocurrency trading, this part of the funds is usually provided by other traders, who charge a certain interest on the margin based on market demand. In addition, there are a few cryptocurrency trading platforms that provide users with margin.
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How does margin trading work?
After starting margin trading, traders need to pay a certain percentage of the total order value. This initial investment is called “margin” and is closely related to the concept of leverage. In other words, a margin trading account is used to create leveraged trades, and “leverage” refers to the ratio of borrowed funds to margin. For example, to open a trade with a total value of $100,000 with a leverage of 10:1, the trader needs to pay a principal of $10,000.
Of course, different trading platforms and markets set different rules and leverage. The stock market is usually set with a leverage of 2:1, while futures contracts are usually traded with a leverage of 15:1. Forex brokerage firms usually set a leverage of 50:1 for margin trading, and in some cases 100:1 and 200:1. In the cryptocurrency market, leverage is generally between 2:1 and 100:1. The trading community often uses the term “x” (fold) to refer to leverage (eg 2x, 5x, 10x, 50x, etc.).
Margin trading can be used to open long and short positions. Long positions reflect bullish market sentiment, while short positions do the opposite. When opening a position using margin trading, the trader’s equity acts as collateral for borrowed funds. Traders must understand this, as most brokerage firms reserve the right to force the sale of trader collateral if the market moves against the trader’s position (above or below a certain threshold).
For example, if a trader opens a long leveraged position, the system will call for a margin call when the price plummets. A margin call is issued when a trader must fund a margin account to meet minimum margin trading requirements. If the trader fails to inject funds, the holdings will be automatically liquidated to cover the loss of funds. Generally speaking, this happens when the total value of all assets in a margin account (also known as “liquidation margin”) falls below the total amount of margin required by a particular trading platform or broker.
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Advantages and disadvantages of Leverage
The most obvious advantage of margin trading is that the relative value of the trading position is relatively large, which can create huge returns for investors. Second, traders can use margin trading to open multiple positions with a relatively small investment capital to obtain diversified investment opportunities. Finally, traders with margin accounts can quickly open positions without transferring large sums of money into the account.
Although the advantages are obvious, the amplification effect is a “double-edged sword”. When losses occur, margin trading magnifies them in the same way, making it even worse for investors. Different from regular spot trading, the loss caused by margin trading may exceed the trader’s initial investment, which is a recognized high-risk trading method. Depending on the leverage used in the trade, a small drop in the market price can also result in a huge loss for the trader. Therefore, investors involved in margin trading must follow sound risk management strategies and use risk mitigation tools (such as limit take profit and stop loss orders ) to reduce risk.
Margin Trading in the Cryptocurrency Market
Margin trading is inherently riskier than regular trading. When combined with cryptocurrencies, the risk is multiplied. The cryptocurrency market has its ups and downs, and margin traders in this space must be extra careful. While hedging and risk management strategies may work, margin trading is certainly not suitable for beginners.
Analyzing charts, identifying trends, and determining buy and sell price points does not eliminate the risk involved in margin trading, but it can help you accurately predict risk and trade efficiently. Therefore, before using leverage in cryptocurrency trading, it is recommended that users first develop a keen understanding of technical analysis, and at the same time accumulate rich experience in spot trading.
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Margin Fund
For investors who cannot afford the risk of margin trading, there is another way to profit from margin trading. Some trading platforms and cryptocurrency exchanges offer a “margin fund” function, where users can fund other users’ margin trades.
The process usually follows specific terms and results in dynamic interest rates. If the trader agrees to the terms and accepts the offer, the fund provider has the right to repay the loan at the agreed interest. While such mechanisms may vary from exchange to exchange, providing margin funds for other users is relatively low risk given that leveraged positions can be liquidated to avoid excessive losses. Additionally, margin funding requires users to deposit funds into a trading platform wallet. Users must consider the risks they face and understand how the feature works in their chosen trading platform.
Summary of Binance’s Leverage
Margin trading is indeed a very useful tool for users looking to double their earnings. When used properly, leveraged trading offered by margin accounts can effectively improve profitability and diversify investment portfolios.
However, as mentioned above, this trading method may lead to liquidation, which is a huge potential risk. Therefore, it is only recommended for skilled traders. Due to the ups and downs of the cryptocurrency market, you should exercise caution when participating in margin trading.
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How to Calculate the Return on Investment (ROI) of Cryptocurrency
Return on investment (ROI) is a financial metric used to evaluate the effectiveness of an investment in an asset and indicates the growth in the value of an investment over a period of time. ROI is one of the main financial metrics used both in the traditional stock market and in the cryptocurrency world.
How to Calculate ROI
Basic formula for calculation:
ROI = (FVI – IVI) / IVI * 100%
FVI = closing price of investment
IVI = Initial value of investment
Assuming you invested $1,000 in the S&P 500 a year ago, this investment is IVI. A year later, the S&P 500 is up 25% and if you sold your investment for $1,250, that’s FVI. So, the return on this investment is:
(1,250 – 1,000) / 1,000 * 100% = 0.25 = 25%
The above formula is a basic ROI calculation method shown under the assumption that there are no additional costs or fees associated with holding an investment. The basic formula is a convenient way to quickly evaluate the ROI on an asset, stock or cryptocurrency.
However, it is unrealistic to assume that the investment can be maintained at no additional cost. For example, if you buy $1,000 on the S&P 500, you will have to pay a transaction fee and the broker will incur an annual account fee. What’s more, when you sell your investment, you also pay some transaction fees.
All of these fees can quickly erode the underlying ROI figure, especially for smaller investments. To calculate your ROI taking all these additional costs into account, try the formula below.
ROI = (FVI – Expenses – IVI) / IVI * 100%
Because of its simplicity, ROI is a very convenient indicator for quickly evaluating the effectiveness of an investment. But perhaps because of this simplicity, ROI has a number of limitations to consider.
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Limitations of ROI
One of the limitations of ROI is that it cannot take into account investment risk, which is a very important factor in every investment decision.
The ROI formula excludes the risk involved in the specific asset being valued. In general, high-yield investments come with higher risks. For example, many traditional large stocks offer modest ROI, but with high ROI, they are significantly less risky than stocks of younger, less volatile companies.
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ROI Limits in the Cryptocurrency Market
This is especially true of cryptocurrency markets where many new emerging coins can post incredibly high ROI figures, but at the same time very risky.
Another limitation of ROI is that it is difficult to account for all possible costs over the investment period. It is best to tune the basic ROI formula to account for cost, but in reality it is difficult for a number of reasons, especially in the cryptocurrency world.
For example, transaction fees associated with cryptocurrency trading are generally very volatile and difficult to predict. These fees can have a significant impact on your ROI, especially if your investment is small. Therefore, predicting the expected ROI of crypto assets can be difficult.
When evaluating historical ROI figures, the actual fees and costs associated with them are rarely considered. When looking at ROI figures for various assets, most people use the basic formula and look only at the headline figures. However, the headline figures can be a bit deceptive, especially for small investors.
Another limitation of ROI is that it focuses on the past and can provide limited insight into the future or state of an asset. Some analysts make very baseless predictions about an asset’s future performance with ROI figures.
However, past performance is not always a good predictor of future trends. This is especially true for new low- cap cryptocoins. When evaluating assets, it is always advisable to supplement historical ROI figures with a fundamental analysis of future market directions.
Finally, the biggest limitation of ROI is the inability to take the time factor into account. The return on an investment valued at $100 to $150 would be 50% regardless of whether this growth occurs over a one-year or ten-year period. Of course, the former is much more preferred than the latter.
To address these limitations, annual ROI can be used.
What is annual ROI?
Annual ROI shows the standardized annual return on investment, taking into account the investment period. An indicator of the average annual performance of an investment over the entire period.
The annual ROI formula is:
Annual ROI = ((1 + ROI) 1/n – 1) * 100%
n = years of investment
The annual ROI for an investment valued at $100 to $150 over 10 years is 4.14%, while the annual ROI for the same investment valued at the same amount over a one year period is 50%.
A standard ROI shows exactly the same performance for these two investments, but an annual ROI makes it easy to see that there is a big difference in performance between the two investments.
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Bitcoin ROI
Since its inception in 2009, Bitcoin (BTC) has had a very strong ROI performance from a traditional stock market perspective. First, let’s take a closer look at the ROI of the world’s top crypto assets.
Although ROI can be measured over any time interval, many financial analysts use some standardized time period to determine the short-term, medium-term, and long-term ROI of an asset. Of course, what constitutes short-term, medium-term and long-term is subjective. To demonstrate the ROI performance of Bitcoin, we will use time intervals of 1, 2, and 5 years.
The table below shows the ROI of Bitcoin as of October 9th.
Return on Investment (ROI) of BTC
| Year 1 ROI ( from October 2020 ) | 401% |
|---|---|
| Year 2 ROI ( from October 2019 ) | 536% |
| Year 5 ROI ( from October 2016 ) | 8770% |
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Ethereum (ETH), the second largest cryptocurrency, has posted significantly more impressive ROI figures than Bitcoin over the past few years.
Return on Investment (ROI) of ETH
| Year 1 ROI ( from October 2020 ) | 919% |
|---|---|
| Year 2 ROI ( from October 2019 ) | 1753% |
| Year 5 ROI ( from October 2016 ) | 29613% |
ROI of other top cryptocurrencies
In general, all of the cryptocurrencies currently in the top 10 have had very impressive ROIs over the past year.
However, since a significant number of these cryptocurrencies did not exist two years ago and the majority did not appear on the market five years ago, it is impossible to estimate the long-term ROI. Also, long-term ROI estimates are misleading, as some have remained very low until two or three years ago and have begun to appreciate in value in the last year or two.
The table below presents the one-year ROI for the top 10 cryptocurrencies by current market capitalization. ( Except for fixed-price stablecoins such as USDT and USDC)
| Top 10 (excluding stablecoins) | Year 1 ROI (from October 2020) |
|---|---|
| BTC | 401% |
| ETH | 919% |
| Cardano/ADA | 2045% |
| BNB | 1387% |
| XRP | 320% |
| Solana | 6499% |
| Polkadot | 697% |
| DOGE | 9113% |
| Terra/Luna | 14119% |
| Uniswap | 649% |
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What are the best and worst cryptocurrencies of the year?
The worst performing top crypto coin this year is XRP, with an ROI of “only” 320%. The 1st place is Terra (LUNA), which has risen by a whopping 14,119% over the past year.
Of course, looking at only the best cryptocurrencies right now can be a bit biased. These coins are likely to have a good ROI just by being in the top 10 right now. So what about the top 10 cryptocurrencies exactly a year ago? What is their current ROI?
The top 10 cryptocurrencies by market cap (excluding stablecoins) from a year ago closely resemble today’s leaderboards. However, the four coins that were in the top 10 a year ago: Chainlink (LINK), Bitcoin Cash (BCH), CRO, and Litecoin (LTC) no longer exist.
Except for the CRO coin, the ROI of the rest is also very impressive. CRO made it into the top 10 a year ago, but has not kept pace with the geometric ROI of other top cryptocurrencies. Even a CRO’s 25% ROI isn’t really bad by traditional stock market standards.
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ROI of cryptocurrency compared to ROI of traditional market
In terms of ROI, major cryptocurrencies have significantly outperformed traditional stock or commodity markets. This is true for short term (1 year), medium term (2 years), long term (5 years), or any period since 2009 when Bitcoin was actually launched.
The good ROI of cryptocurrencies can be easily observed compared to Bitcoin and Ethereum compared to the S&P 500 and gold.
| Year 1 ROI (from October 2020) | Year 2 ROI (from October 2019) | Year 5 ROI (from October 2016) | |
|---|---|---|---|
| S&P 500 | 26% | 50% | 103% |
| Gold | -9% | 17% | 40% |
| BTC | 401% | 536% | 8770% |
| ETH | 919% | 1753% | 29613% |
Last year, the S&P 500 index posted a 26% ROI and gold a minus 9% ROI, while BTC and ETH posted triple-digit ROIs as usual.
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Please check Binance official website or contact the customer support with regard to the latest information and more accurate details.
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Comment by Hans
April 24, 2024
as I am trading here various assets, for me it's the most important feature. i mean, flexibility in tradable markets. i alternate trading styles, meaning that sometimes I trad...