When it comes to trading on Binance, many users may have noticed the “10x leverage” option available on some of the spot markets. Leverage is a common feature in traditional financial markets, and it is also increasingly becoming popular in the cryptocurrency space.
In this article, we will take a look at what 10x leverage on Binance means and how it can be used.
What is Leverage?
In simple terms, leverage is a way of using borrowed funds to increase your potential return on investment (ROI). For example, if you were to buy $1000 worth of Bitcoin with leverage, you would only need to put up $100 of your own money, with the remaining $900 being borrowed.
If the price of Bitcoin then rose by 10%, your investment would be worth $1100, giving you a return of $100 (10% of $1000). However, if the price fell by 10%, your investment would be worth $900, resulting in a loss of $100.
As you can see from the above example, leverage can magnify both your profits and losses. This is why it is important to only use leverage when you are confident in your market analysis and have a solid risk management strategy in place.
How to Use Leverage on Binance?
Using leverage on Binance is relatively straightforward. First, you will need to deposit some funds into your account. Once you have done this, you can then go to the “Margin” tab and select the market you want to trade.
On the right-hand side of the order form, you will see a leveraged option with 1x, 3x, and 5x being the most common choices. You can then enter your order details as usual and submit your trade.
It is also worth noting that Binance offers margin trading for both spot markets and perpetual contracts. Perpetual contracts are similar to traditional futures contracts but do not have an expiry date.
This means that they can be held for as long as you like and are often used by traders who are seeking long-term exposure to a particular market.
What Does 10x Leverage Mean?
As we saw from the earlier example, 5x leverage will allow you to increase your ROI by up to 5 times. 10x leverage will obviously do the same but with even greater potential profits (and losses).
So, if Bitcoin were to rise by 10% when you are using 10x leverage, your investment would be worth $2000 (10% of $2000). Of course, if Bitcoin fell by 10%, your investment would be worth just $800.
As with any other form of trading or investing, it is important to remember that leverage does not guarantee profits. In fact, it can often lead to even greater losses if not used carefully.
This is why it is important to always use stop-loss orders when margin trading and to never risk more than you are willing to lose.