Leverage on the Binance platform is a tool that allows traders to increase their purchasing power by borrowing funds from the platform, enabling them to open larger positions than their actual capital. This tool is used in various types of trading, such as margin trading, futures, and automated trading, but it is not available in spot trading.
How leverage works on Binance
When using leverage, the trader deposits a certain amount as collateral (margin), then chooses an appropriate leverage ratio, such as 1:2, 1:5, or 1:10. For example, if you have $100 and choose a leverage of 1:10, you can open a position worth $1000. This means that any profit or loss will be multiplied ten times compared to trading without leverage.
Types of leveraged trading on Binance
Margin Trading: Requires a specified margin deposit, and interest is charged on loans. Leverage typically ranges from 2x to 10x.
Futures Trading: Allows the use of leverage up to 125x, enabling significant profits, but it also carries high risks.
Auto-Trading: Allows trades to be executed automatically using predefined strategies, and leverage can be used within these strategies.
The risks associated with leverage
Although leverage can multiply profits, it also increases the potential size of losses. If the market moves against your expectations, you could lose a significant part or all of your invested capital. Therefore, it is essential to use risk management strategies, such as setting stop-loss and take-profit orders.
The Sharia ruling on using leverage
According to the fatwas of some Islamic bodies, trading with leverage is considered prohibited in Islamic law due to the interest involved and the combination of loans and exchanges, as well as the failure to meet the conditions for possession. Therefore, Muslims are advised to stay away from this type of trading and seek investment means that comply with Islamic law.
Tips for using leverage cautiously
Start with a low leverage ratio to reduce risks.
Use stop-loss orders to protect your capital.
Avoid using leverage in highly volatile markets.
Conduct technical and fundamental analysis before opening any position.
Make sure you fully understand how leverage works and the associated risks before starting to trade.
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