Binance US, the American arm of the world’s largest cryptocurrency exchange, recently announced that it would be adding margin trading to its platform. The move comes as other major exchanges like Coinbase and Kraken have also been adding margin trading features to their own platforms.
So, what is margin trading? And how will it work on Binance US?
What is Margin Trading?
Margin trading is a type of trading that allows users to trade with leverage. In other words, users can put down a small amount of money and borrow money from the exchange to trade with.
This allows users to increase their potential profits (or losses) from a trade.
For example, let’s say you have $100 and you want to buy $1,000 worth of Bitcoin. With a traditional spot market trade, you would only be able to buy $100 worth of Bitcoin.
However, if you were margin trading with 2x leverage, you could buy $200 worth of Bitcoin with your $100. If the price of Bitcoin goes up 10%, then your $200 worth of Bitcoin is now worth $220, and you’ve made a 20% return on your investment.
Of course, the same goes for losses. If the price of Bitcoin falls 10%, then your $200 worth of Bitcoin is now only worth $180, and you’ve lost 10% of your investment.
This is why margin trading is considered to be a high-risk/high-reward type of trading.
How Will Margin Trading Work on Binance US?
Binance US will be offering 3x leverage on its platform at launch. This means that users will be able to put down 1/3rd the amount of money for a given trade and borrow 2/3rds from Binance US. For example, if you have $100 and you want to buy $300 worth of Bitcoin, you would only need to put down $33.
33 and borrow the other $166.67 from Binance US.
Binance US will also be implementing risk management measures to protect both itself and its users from excessive losses. For example, there will be limits on how much money a user can borrow based on their account size and history.
There will also be limits on how much leverage a user can use at any given time. These measures are designed to prevent users from taking on too much risk and losing more money than they can afford to lose.
Conclusion
So, can you margin trade on Binance US? The answer is yes! Binance US recently announced that it would be adding margin trading to its platform starting in September 2019. Margin trading is a type of trading that allows users to trade with leverage.
This means that users can put down a small amount of money and borrow money from the exchange to trade with. This allows users to increase their potential profits (or losses) from a trade. However, margin trading is considered to be a high-risk/high-reward type of trading, so users should only use as much leverage as they are comfortable with and always practice risk management when margin trading.