What is Margin Trading?
Margin trading is a method of trading where you can borrow funds from the exchange (like Binance) to trade with a larger amount than your actual capital. It allows you to amplify your profits, but it also increases your risks.
How Margin Trading Works on Binance:
1. Leverage:
The higher the leverage you use, the more you can trade.
Example: If you use 2x leverage and have $100, you can open a trade worth $200.
2. Borrowing Assets:
You deposit a certain amount as collateral and borrow additional crypto or USDT from Binance.
Example: You can borrow USDT to buy BTC.
3. Interest Rates:
You pay interest on the borrowed amount.
The interest is calculated hourly or daily depending on the asset.
4. Margin Level:
This shows the health of your margin account.
If your margin level drops too low, your position may get liquidated (forcibly closed by the exchange).
5. Cross vs. Isolated Margin:
Cross Margin: Your entire balance is shared across positions. Losses in one trade may affect others.
Isolated Margin: Each position has its own margin. Losses are limited to that specific trade only.
Advantages of Margin Trading:
Opportunity for higher profits with less capital
Ability to take larger positions using leverage
You can earn even in a falling market (short selling)
Risks of Margin Trading:
Higher leverage means higher risk
You may lose your entire balance if liquidated
Interest must be paid on borrowed funds
Example:
You have $100 and use 3x leverage = $300 trade size.
If the market goes up by 10%, you gain $30.
But if the market drops by 10%, you lose $30 and might get liquidated.
