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What is Leverage and How is Binance Futures Offering This To Users?

Learn about leverage trading and how to use it

As the cryptocurrency market expands and new traders enter the space, there are new ways for investors to make money, improve their trading strategies and continue to invest in digital assets. One of the ways to invest that became very popular in the last months is to use Binance Futures and trade with leverage. 

In this guide, we will share with you what is Leverage trading (which is also known as margin trading) how you can use it to trade digital assets and why you should consider it a great solution to start handling virtual currencies and improving your trading strategies.

Read More: Where is Binance Based? 

What is Leverage Trading?

Leverage trading is a trading strategy in which the investor borrows funds in order to be able to trade with a larger sum of money. This would help them improve their positions, place larger trades and eventually gain more money while trading in the cryptocurrency market. 

Binance Futures is offering users to trade in the derivatives cryptocurrency market and use leverage up to 125x in order to be able to exchange digital assets. That means that users, in specific trading pairs, will have the possibility to trade with 125 times more the funds they have. 

Let’s use a simple example. If you have 100 USDT and you are trading with this money, you can request to trade with 125x leverage in the Binance Futures platform and get as much as 12,500 USDT. This is going to make it easier to make a profit and increase the money that you use to trade. 

If the market moves 10%, you will get much more if you trade with a leveraged trade rather than with a normal spot market price increase. 

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Be Careful About Leverage Trading

Although this can be a good way to increase our funds and profits while trading cryptocurrencies, you need to know there are many risks involved in leveraged trading. The first thing you need to know is that you need to pay for the funds they gave you. There is an interest fee that can be paid every some hour if you want to trade with leverage. 

To keep your position open, you must always select a stop loss. If not, you can lose your funds and also the entire trade. When you are not watching the markets, the best thing you can do is to create stop-loss and take-profit-limit orders that would allow you to feel safe when you are not in front of the screen. 

If you use low margin to trade – that means that you use large leverage but a small number of funds – then your position may get liquidated faster if the market doesn’t move in the position you are expecting it to do so. If that happens, your margin will be a double-edged sword. 

You must always ensure that your balance is in your wallet if you want to avoid liquidation. Nonetheless, if the market continues to fall and you are 5%, 10% or 20% down, the best thing to do might be to close the position at a loss rather than continue to lose money from our main wallet. 

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Binance Futures Tools

Binance Futures is equipped with a large number of tools that would make it easier for you to trade digital currencies in the market and with leverage. As we mentioned before, you can use a stop-loss order that would help you to close your position when the market moves a pre-defined amount (which you can choose) in the opposite direction. 

The same you can do with take-profit limit orders that would allow your position to get close at a specific price once you reach a certain level of profits. That would be good when you need to leave the computer and your trading desk and stop following the markets to close the trade manually. 

There are many other tools that would allow you to make a better analysis of the market and how you should behave. 

Conclusion

Trading with leverage will allow us to use a larger amount of money to trade in the market even if we do not have it. As we receive borrowed funds, we will have the chance to make larger profits as we will be using more money to trade in the market. 

However, this can be very dangerous if we do not know how to use it or if we use too much leverage and we do not have funds to keep the position open if the market moves on the contrary direction. 

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