Intermediate
Binance lever effect: how trading works with margin on future contracts
Are you trying to understand what the leverage effects on Binance and how to take advantage of them on future contracts ? The idea is simple: borrow additional capital to increase the size of your positions , without having to mobilize all of your funds. But beware, a lever effect does not only increase the gains: it also increases potential losses . Here, we are going to explain step by step how it works, what are the specifics of the Binance and, above all, how to manage these risks so as not to lose everything in an instant. Binance 's future contracts are not available in certain countries, especially in France.
Table of contents
What is the lever effect: basic principles
The lever effect is a common practice in traditional finance which consists in using borrowed funds trading platform or a scholarship) to open a position than your only capital. In the case of Binance lever effects , the platform allows you to increase the size of your transaction up to 125 times your bet, depending on assets and risk tolerance .
When you use a X10 or X20 lever effect , for example, this means that for $ 100 invested, you can start $ 1,000 or $ 2,000 respectively. The attraction? Possible gains multiplied if the trend goes in your direction. The reverse? Losses equally multiplied if the market evolves unlike your anticipation .
Lever effect and Margin Call
As soon as we talk about lever effect , we must mention the Margin Call or a margin call . This is the moment when your margin (the amount you have really invested) is no longer enough to cover the latent losses of your position . In this case, the platform asks you either to inject additional funds, or to risk liquidation of your transaction to reimburse the loan.
The advantages of the lever effect on Binance
- Variety of cryptocurrencies : Binance offers a wide selection of future contracts ( BTC / USDT , ETH / USDT , BNB / USDT leverage effect levels .
- Solid reputation : Binance is one of the most popular crypto scholarships, with an often high exchange volume, which limits the pants and ensures good liquidity.
How the lever effect on future Binance works
The future account and the selection of the lever
To benefit from the Binance lever , you must first open a future account on the platform. Once connected:
- Go to the future .
- Choose the pair of cryptocurrencies that you want to negotiate (eg BTC / USDT , ETH / USDT ).
- Adjust the lever level : you can select, for example, X5, X10, X20… up to X125 on certain contracts . The higher the lever, the more the risk increases.
- Transfer funds ( USDT , Busd or other stablecoin accepted) to your portfolio to have a starting margin
Once your lever effect has been defined, you can open a long (long) position if you anticipate an increase in the course, or a short position (shorts) if you think the value will decrease.
Cross margin and isolated margin
margin modes are offered to manage your lever effects on Binance :
- Cross margin : all of your future can be used to avoid the liquidation of a position . This can protect short -term positions, but increases the risk of losing the entire balance in the event of extreme market movement.
- Isolated margin : you allocate a specific amount at each position. Thus, a liquidation on a pair does not impact your other positions. It is recommended to limit losses and partition your strategies.
Choice of margin mode
- If you are a beginner , favor the isolated margin . You will know exactly how much you risk by position .
- The cross margin may interest more experienced traders, capable of monitoring several positions , while accepting a higher risk
The essential tools for trading well with a lever effect on Binance
Stop-loss and Take-Profit
To limit the risks , you can define:
- Stop-loss : Order triggered automatically as soon as the market reaches a certain decreased price. He closes the position to avoid loss .
- Take-Profit : Order that locks your earnings when the market reaches a target price. You thus secure added value without delay a possible reversal.
In trading on future Binance , these two orders often place themselves simultaneously. exit price to collect a profit , and the acceptable loss limit.
Types of orders
- Limit order : you set the course to which you want to enter the market. If the price does not reach this limit, your order is not executed.
- Market order : You immediately enter the best price on the market. The costs are generally a little higher (taker) than for a limited order.
- Stop order : this is a conditional order, triggered only if the price passes a certain threshold.
Understand the funding rate
On Binance Futures , you will regularly meet the concept of funding rate . It is a periodic adjustment mechanism (every 8 hours, in general) between long and short . When the market is mainly bullish, it is the “long” who pay a small percentage to “shorts”, and vice versa. This system maintains the convergence between the price of the perpetual contract cryptocurrency spot course .
Concrete example of the use of the lever effect on Binance
Imagine that you have $ 500 on your future account , and that you decide to open a long position on the BTC via the BTC / USDT contract . You select an X10 lever effect , therefore allowing you to control a notional value of $ 5,000 (10 times more than your real margin).
- Entrance price : $ 26,000 BTC
- Position size : 0.1923 BTC (because about $ 5,000 / 26,000)
- Stop-loss : to $ 25,000, to limit the loss if the market drops.
- Take-Profit : $ 27,500, if you are targeting a quick rebound.
If the course rises to $ 27,500, your gain is (27,500 - 26,000) * 0.1923 = $ 288.45. On an initial capital of $ 500, it is a profit of around 57 % (excluding costs). On the other hand, if the market collapses at $ 25,000, you lose around $ 192.3, which already represents 38 % of your $ 500. Without leverage , your gains and losses would have been more moderate.
Without leverage , with the same $ 500, you could only have purchased 0.0192 BTC ($ 500 / $ 26,000). An increase at $ 27,500 would have generated a profit of approximately $ 28.85 (5.77 %) , and a drop to $ 25,000 allegedly resulted in a loss of $ 19.23 (3.84 %) . The lever effect therefore amplifies both gains and losses.
The different levels of leverage on Binance
From x1 to x125
- X1 : actually means that there is no lever effect , but a simple notional exchange.
- Between X2 and X20 : Frequent for beginners traders who wish to slightly increase their exposure without running an excessive risk.
- Beyond X20 (X50, X75, X100, X125): reserved for very experienced traders, aware of the volatility of the crypto market. The risk is enormous, because a variation of 1 % in the course can destroy the margin if you are too lever.
Manage the risks of leverage trading on Binance
Set a "maximum" budget "
- Before each position , clearly determine the amount you agree to lose. The lever effect must always be chosen according to this budget, not the other way around.
- If you are targeting a profit , make sure you have stops to cut your losses quickly.
Analyze market volatility
- The crypto market is highly volatile. A 2-3 % drop in a few minutes is relatively common. With an X50 lever , your margin could disappear in an instant.
- Monitor support and resistance levels, as well as major announcements (project launches, regulatory decisions) likely to switch the course against you. Also pay attention to the potential market manipulation of large investment funds/ market maker which can voluntarily break many liquidity pockets to buy lower or sell higher.
Diversification strategies
- Some traders simultaneously use several positions with moderate leverage, rather than one position with extreme leverage. This distributes the risk .
- It is also possible to cover a long position on a crypto with a short position on another, if they are correlated. This is called Hedging .
FAQ on Binance lever effects
How long can we keep a lever effect position?
The perpetual future contracts on Binance do not have a due date, which means that they can be kept indefinitely, provided that the trader meets margin requirements .
Margin requirements designate the minimum capital that you need to keep in your account to cover your position. They are divided into two categories:
- Initial margin : amount required to open the position.
- Maintenance margin : minimum level to be respected to avoid liquidation.
If the balance of your account falls below this maintenance margin , Binance automatically liquidate your position to limit the losses.
In addition, the funding rate , which is a periodic cost paid between long and short traders to align the price of the contract with that of the Spot market, can become too expensive . When this rate is high, maintaining a long -term open position becomes expensive, thereby reducing overall profitability and increasing the risk of exhaustion of available capital. If the combination of a high financing rate and insufficient margin occurs, the liquidation becomes inevitable.
What are the costs on future Binance ?
Binance invoice:
- A trading commission varying depending on whether you are a maker or a taker . Binance user , the costs are as follows:
- A funding rate (Funding Rate): it varies every 8 hours and depends on the “long” or “short” dominance. Depending on this rate, you pay or receive a small regular percentage.
How to avoid liquidation?
- Choose a lever effect , less than X10 if you are a beginner .
- Place stop-loss to cut losses before reaching your liquidation price .
- Monitor the margin ratio : if you work on the isolated margin , you know exactly how much you risk.
How to start serenely with a lever effect on Binance
1. Study the fundamentals of the Crypto market
If you have never traded , start with the spot . Learn to interpret candlesticks, identify trends. So you have fewer surprises when you add a lever .
2. Choose a weak lever
- Start with an X2 or X3 , just to familiarize yourself at risk .
- Avoid going directly to X20 or X50, even if you are targeting large gains .
3. Define clear objectives
- Profit objective : set yourself a percentage or a price where you will sell a part or even the whole position .
- Loss threshold : As soon as it is opened, place a stop-loss so as not to lose more than a certain amount.
4. Monitor the calendar and the news
LEVER effect trading can turn against you during major events :
- Publication of macro-economic data.
- Speech by regulators or large figures of the Crypto market.
- Fork or launch of a big update of the protocol (eg Merge ofEthereum).
Advantages and disadvantages of leverage on Binance
Benefits
- Capital multiplication : you control a position than with your funds alone.
- Flexibility : you can do long or shorts easily, and enjoy each movement.
- Diversification : with a small capital , you can open several positions on different cryptos at the same time.
Disadvantages
- Rapid loss : a hostile market can liquidate your margin in a few moments.
- Funding rate : If you keep your position , these costs can eat your earnings .
- Stress : Following a volatile market by being exposed to the triple, fivefold or more of its stake can be mentally trying.
Current strategies in trading in future contracts
Scalping or Day-Trading
Scalping is to open and close positions on short time (a few seconds a few minutes) . With a lever effect , you can chain several micro-trades during the day. Disadvantage: stress and transaction costs
Swing trading
The swing trading is targeting horizons of a few days to a few weeks. You are looking for sharper trends stop-loss . Binance lever effects here can be X5 or X10 , to capitalize on a clear movement.
Hedging
If you already have Bitcoin or Ethereum Ethereum spot, you can open a lever -effect short position to cover your assets in the event of a drop. Thus, your loss on cash value can be offset by shorts of shorts.
Conclusion: the keys to mastering the effects of Binance lever
To summarize, the Binance leverage offer a substantial potential of gains , but also have a risk of losses . Some key points:
- Determine your risk profile : do not use a lever if you are a beginner .
- Protect each position : Stop-Loss and Take-Profit are essential to avoid unexpected liquidation.
- Monitor the financing rate and volatility : stay attentive to market conditions, a simple “tweet” or a news can reverse the trend.
- Prefer the isolated margin if you want to partition your positions and not lose everything in the event of a brutal movement.
- Continuing education : Read, practice in demo or with small sums before engaging with large capital.
By choosing a lever effect adapted to your level, you can exploit the opportunities of future markets while limiting the consequences of a sudden drop. The main thing is to keep control of your emotions , to define your goals trading plan .
Last remark
Never forget that the Crypto market is one of the most volatile in the world. An X10 lever effect may seem interesting, but a simple variation of 10 % in the opposite direction of your bet is enough to make you lose all of your margin . Binance lever effects should therefore be handled with care, especially when you start in the trading of future contracts .
So much for the fundamental notions on the lever effect at Binance . Take the time to control the risk , learn to use limited or stop , and do not hesitate to train more before using a too large lever. The end goal: to grow your capital in a thoughtful way, rather than seeing it disappear overnight.
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Yohan Uzzan
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
