How to protect your assets when trading Margin
“Every mountain you climb, leads you to a never ending destination of thriving gorgeously.”
― Hiral Nagda
Wikipedia defines protection as any measure taken to guard a thing against damage caused by outside forces. In the context of this write-up, Protection is any measure taken to guard your assets against damage when trading on Binance margin. While it is very possible to be carried away when trading on Binance margin, it is very important to be vigilant as well.
What is margin trading? this is simply a way of using funds usually supplied by a 3rd party to carry out transactions. This is quite different from the conventional trading as it allows for more funds and support in using positions.
Advice for protecting your asset when trading margin
While it is interesting to trade on Binance margin, there is a need to be careful so as not to be disappointed and sad at the end of it all. Here are a few tips for protecting your assets when trading margin;
- Choosing a trustworthy platform like Binance: Binance has proved time and time again that it can be trusted with the way business is being conducted seamlessly every single day through its platform. Binance margin is no exception as its completely reliable to trade there. With a reliable and fast customer service, you are sure to get speedy replies to any complaints or questions you might have.
- Keep monitoring your LTV: LTV basically means Loan-to-value and is the ratio that calculates the value of a loan against the market value of its collateral. A high LTV ratio connotes a high financial risk and vice versa. The LTV ratio is used by Binance to determine the risk level of your cross collaterals. You will receive a margin call notification from Binance either through Email or SMS asking you to add more collateral to reduce the risk of liquidation when the LTV ratio reaches the Margin Call level. Inability to respond appropriately to this notification triggers a forced liquidation on your collateralized assets, then a liquidation call notification via email, and SMS will be sent out to notify you. A liquidation fee will be required which is 1% of the loan amount. You can always adjust the LTV ratio to avoid the liquidation of collaterals.
Here is how LTV is calculated:
LTV = Loan Amount / Collateral Amount x 100%
(Loan Amount = Principal + Interests)
Example: 1 BTC is equivalent to 7,400 USD on 2022/05/12, thus 0.01938571 BTC equals to 143.45 USDT
LTV (%) = 100 USDT / 0.01938571 BTC x 100%
= 100 USDT / 143.45 USDT x 100%
= 69.71%
- Use Cross Margin or Isolated Margin with full understanding: as a trader, the knowledge of Cross margin and Isolated margin is important as they are effective tools to use whilst trading. The entire margin balance is shared across open positions to avoid liquidation in the Cross margin mode. When Cross Margin is activated, the trader risks losing their entire margin balance along with any open positions in the event of a liquidation. Isolated Margin is the margin balance issued to an individual position. When Isolated margin mode is activated, traders manage their risk on their individual positions by controlling the amount of margin allocated to each one. Now which is better? Both are equally good but my heart would stick with the Cross margin because it has a better ability to control the risk of liquidation. Hence, it is more sustainable in long-term strategy, which requires positions to survive under extreme market situations.
Benefits of Binance Margin
- Diverse trading pairs: trading pairs are 2 cryptocurrencies paired together e.g BTC and USDT, BUSD and BTC, ETH and BTC and so on. While trading margin on the Binance platform, you are privy to tons of interesting trading pairs with leverage of up to 10X. Do note that the volatility of an asset’s price will determine the liquidity the market holds for it, for instance; the higher the volatility, the less the liquidity the market holds for it. And this is due to the fact that because the volatility of the asset is high, it makes it very unreliable and thus, just few trades are carried out on that asset in the market.
- Multi-asset collateral: Binance affords its users the opportunity to invest multiple assets as collateral to borrow leverage. This is made possible in the Cross margin mode. This is put in place so traders can have more flexibility when opening trades.
- Cooling-off period: this is a precautionary measure put in place by Binance to avoid excessive trading. The Cooling-off Period allows traders to temporarily suspend all margin trading activity for a specified period. Traders can set a Cooling-off Period of 1 day, 3 days, or 1 week. When the Cooling-off Period is enabled, margin accounts cannot be used to borrow any cryptocurrencies.
- Insurance fund: with an insurance fund of over $300 million, margin traders on Binance should be rest assured that their assets are SAFU. This is in order to protect bankrupt traders from adverse losses while ensuring that the profits of winning traders are paid out in full.
- Customer service: because of the massive amount of users from different parts of the world on its platform, Binance has a great customer service with support in 17 different languages with an easy-to-use user interface too. This means traders are not left stranded whenever they encounter any issue while trading on Binance margin.
Binance Margin’s Interest Rate Reduction Promotion
As part of Binance’s commitment to make trading experience more suitable, Binance has a promotion targeted on Interest rate reduction…
Promotion Period: From 2022–03–21 11:00 AM (UTC) until further notice
Binance Margin has launched a promotion to reduce interest rates for BTC, ETH, BUSD and USDT on the platform. During the promotion period, users may enjoy discounted annual interest rates that are as low as 0.8% with the mentioned assets.
https://www.binance.com/en/support/announcement/5a523469462a46629e793956d691ac3f
New Tiered Interest Rates for BTC, ETH, BUSD and USDT on Margin:
Note: Interest rates may differ depending on the VIP level of users, margin pairs and other factors. Please refer to Margin Data for a list of the most updated marginable assets and further information on specific limits and rates.
In Conclusion, the promotion is a way to save more while trading due to the interest reduction. Do not miss out on this amazing opportunity.
Get started on your Binance margin journey today! https://www.binance.com/en/trade-margin/BTC_USDT
Create a free Binance account today https://www.binance.com/en/buy-sell-crypto?ref=ZCF73TU7
Happy Trading :)
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