Binance is one of the most popular cryptocurrency exchanges on the market today, and they have recently expanded their offering by introducing margin trading. Here is a quick guide on how to margin trade Monero on Binance.
1. What is margin trading?
When trading on margin, users borrow funds from an exchange or other traders in order to leverage their capital. In other words, margin trading allows traders to enter positions that are bigger than their starting capital, for example entering a position worth 2 BTC by posting 1 BTC as margin. In this example, we would say the user is trading at 2:1 leverage or “2x”. Traders can choose between a number of top cryptocurrency margin trading exchanges.
Margin trading comes with a higher degree of risk than simply trading with your own funds. While your gains will be amplified if you correctly predict the direction of the market, losses can add up very quickly if the market moves against you. If your margin level gets too low, your position will be liquidated – you will lose all the funds you posted as margin to enter the leveraged position.
2. Margin trading on Binance
Even though you don’t need to verify your identity to use most of Binance’s features (if you’re withdrawing less than 2 BTC per day), you will have to complete a know your customer (KYC) process to start margin trading on Binance. Please note that the margin trading feature is not available to residents of all countries. Among others, the blacklist includes the United States, Japan, Canada and South Korea.
Go to your Binance account dashboard, select the “margin” tab and click “open your margin” account. If your account is not verified yet, you will be prompted to start the KYC process.
3. Transfer funds from exchange wallet to margin wallet
Now, you will be able to transfer funds between your exchange wallet and your margin wallet. You can monitor their status via the “wallet” tab on your account dashboard. You can fund your margin wallet by choosing the coin you want to deposit from your exchange wallet and clicking the “transfer” button.
Once the funds are in your margin wallet, you will be able to use them as collateral to borrow cryptocurrency for trading. On Binance, you the biggest ratio you can borrow at is 3:1 (for example, you can borrow 0.2 BTC if you commit 0.1 BTC as collateral).
You can choose which cryptocurrency you want to borrow by clicking the “borrow/repay” button. Set the amount you wish to borrow and click “confirm borrow”. Your margin loan will be subject to an interest rate, which will be displayed when you’re setting the amount of funds you’re looking to borrow.
Be sure to monitor your margin level, as you will lose your collateral if it drops to 1.1. At 1.3, you will get a margin call, which means that you either have to deposit additional funds as collateral or repay some of your loan. This is the formula that determines your margin level:
Margin Level = Total Asset Value / Total Borrowed + Total Accrued Interest Rate
4. You’re ready to Margin Trade Monero (XMR)
Now, you’re ready to trade on margin. Go to Binance’s trading interface, and select the pair you want to trade. You can see the pairs that are available for margin trading by clicking the “M” tab in the top right corner of the interface. Once you select your desired pair, in this case, Monero with the ticker XMR, switch from the “exchange” to the “margin” tab under the chart.
Now, you can either buy (go long) or sell (go short) the chosen crypto asset. You can choose to enter your position via a market, limit or stop-limit order. Once you’re ready to take your profits (or cut your losses), you can repay your debt in the margin wallet section. As mentioned previously, always be mindful of your margin level to avoid liquidation.
Images courtesy of binance.vision