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 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 the 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 $1,000. 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 specific 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 also carries high risks.
Auto-Trading: Allows for automatic execution of trades using predefined strategies, and leverage can be used within these strategies.
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 may lose a significant portion 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 legal ruling on the use of leverage
According to the fatwas of some Islamic bodies, trading with leverage is considered forbidden in Islamic law, due to the interest involved and the combination of borrowing and trading, as well as the failure to meet possession conditions. Therefore, Muslims are advised to avoid this type of trading and seek investment methods 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 capital.
Avoid using leverage in highly volatile markets.
Conduct technical and fundamental analysis before opening any trade.
Make sure you fully understand how leverage works and the associated risks before starting to trade.
