What are the main differences here and which one is most suitable for your trading? So if you do have a binance account, you’ll see the trade screen has spot and margin together, and then Futures is a completely separate thing. With margin, what you’re doing is trading crypto in the spot Market. Spot is where you buy and hold crypto with cash, so you own that crypto, and you’re actually buying it from someone else or selling it to someone else. With margin, what you’re doing is borrowing money off The Exchange in order to trade spot crypto, and therefore you’re borrowing more money than you have and you can leverage up your trading. So if you have $1,000, you can let’s say borrow $2,000 to make a $3,000 position, and then you go ahead and buy Spot crypto with that. So you’re borrowing money with margin.
Exploring Binance Futures
With Futures, it’s completely different. Futures are a different Market; they’re a derivative market. And this is a synthetic product which tracks the price of cryptos, so you’re not buying crypto at all. What you’re doing is just trading the price with someone else. So you’re speculating, going long or short, and the price of this is the same as other cryptos, but you’re not buying crypto here. So with Futures, what you’re doing is taking synthetic positions on crypto prices. With margin, what you’re doing is borrowing actual money to buy and trade actual crypto.
Key Differences Between Margin and Futures Markets
Here’s the main differences between the two markets. If you want to trade them, you’ll pay the spot trading fee for margin, which is around 0.1%. For futures, you pay cheaper trading fees. You also get much higher margin with Futures as well, and you pay an interest rate when borrowing money with margin. With Futures, there is no interest rate because you’re not actually borrowing money. What you’re doing is trading on Leverage in Futures and sorting out without any wins or losses via the collateral that you place. With margin, you know you are borrowing money, and then that’s separate from the actual crypto positions that you’re taking on margin.
Funding Rates and Market Conditions
There’s no funding rate, and that’s something that Futures has. With margin, you are actually just trading in the spot market and borrowing money. With Futures, because this is a synthetic contract, they have to try and keep this price in line with the underlying spot price, and so this funding is a way to do that. You either pay this or receive this depending on if you’re long or short, and that can change depending on what the market is doing versus what you’re doing. In any case, funding is something that happens; it can be very low or very high, and it changes depending on market conditions. With margin, that doesn’t happen because you’re just borrowing money to actually buy and hold crypto.
Comparing TradFi and Crypto Trading
If you’ve traded TradFi products before and equities, you may be more comfortable with margin. You’re literally borrowing money to trade. With Futures, these are synthetic contracts where you just simply swap the price of the asset for when you open and close the position, and you can trade with leverage there because the collateral that you place on your account to trade with is simply there to fund any potential losses.
Managing Interest Rates and Borrowing Costs
If we Binance margin trade on margin, we are borrowing money, and so the thing we have to look out for is the interest rate of each asset that’s going to change depending on supply and demand. So you can see the interest rate history here if you want, but if you want to borrow dollars right now, it’s very, very expensive because the Market is very hot. During bear markets, the interest rate to borrow dollars is going to be a lot lower. You can also borrow other assets, you know, crypto assets, which tend to be a little bit lower. So a lot of people are paying to borrow dollars, and the interest rate is very high right now. That’s worked out as an annual figure, but you pay interest hourly, so that racks up. You can see the hourly interest is right here, and that will rack up each and every hour for you.
Navigating the Margin Trading Screen
- If you go over to the margin trading screen, you can switch this around so we can see borrow and repay.
- So if you want to borrow, you can obviously open a position.
- You can see the max leverage here.
- So what you can do is switch this on and then use this as a slider.
- So this automatically opens margin positions for you.
- Let’s say you have $1,000, but you actually want your position to be, you know, 2x or 3x that.
- You can just have that right here and then press confirm, and it will open those 3x orders for you.
- So if you enter a $1,000 order, it’s going to borrow some money, and then you have a $3,000 position.
- Now that $1,000 is there to fund any potential losses.
- So a roughly 33% loss on your $3,000 position will obviously wipe out your initial Capital.
Understanding Margin Calls and Collateral
So you can’t have any bad debts or you at least shouldn’t. What will happen down here is that you can see your margin level, and if it gets down to very, very low margin, so collateral is about to get wiped out, you will not be able to trade. You’ll get a margin call, and eventually they’ll actually liquidate your position if that happens. You can, of course, add and repay this collateral as well. You can add more to your position to reduce the margin. So you can see borrow and repay and transfer here. So that can all be done automatically when you open the position, or you can do it manually just by pressing these buttons, and you can add assets in to reduce the leverage that you’re taking.
Learning to Trade Margin and Futures on Binance
If you want to know exactly how to trade margin and futures on Binance, I have full video guides for that which I’ll leave down in the description. So it goes through getting set up with accounts, how to manage risk, and how to manage all of your leverage or margin as well. So check out those videos. Very different on the future screen though; you are not borrowing any money here. So what you can do is take leverage because you can simply enter a trade with the market, and as long as you have collateral on your account to fund any potential losses, they basically let you open any position size that you want within reason.
Isolated vs. Cross Margin Trading
| Feature | Isolated Margin | Cross Margin |
|---|---|---|
| Borrowing Method | Borrow money for each individual trade | Borrow money for your account, all trades use borrowed money |
| Margin/Leverage Adjustment | Press the margin or leverage button to change | Press the margin or leverage button to change |
| Example Position | Open a $110,000 position with 10x leverage | Open a $110,000 position with 10x leverage |
| Initial Investment for Example | Put $11,000 down | Put $11,000 down |
| Trade Size for Example | $110,000 | $110,000 |
| Funding Example for Smaller Trade | $1,000 position funded with $100 (10x leverage) | $1,000 position funded with $100 (10x leverage) |
Trading Without Borrowing Money
So you’re not borrowing any money here. You are just trading with that and using your collateral to fund any losses. You can see that down here. You’ll see your margin and your leverage, and you know what’s going on here if you’re very close to getting liquidated or not. And of course, you can add extra assets in to reduce any of the leverage that you’re taking. But no interest rate here, but you do pay a funding fee every 8 hours, and that will change over time depending on market conditions.
Exiting Positions in Futures Trading
Another important difference here is that with Futures, you’re usually just trading the price of something, and the way that you exit the position is just taking your position down to zero. So if you’re long, then the way that you close your position is to just cash out of that, and then usually you go back into the stable coin, and then you actually don’t own anything, but you’ve just exchanged the profit or loss for that position. With margin, what you can actually do is obviously borrow money to take a position and then over time simply pay it off, and then you actually own the underlying crypto that you were trading at that time.
Margin Trading for Advanced Strategies
So there is a big difference here. This is just for trading the price of things, which does allow for some more advanced day trading and hedge fund type strategies. With margin, you’re literally just borrowing money and going about with your trades as normal. If you want to know about margin and Futures,. You can see me trading on Binance and other platforms. I’ll leave some deposit bonus links for the platforms I use down in the description as well. I’m James as man G CH for watching, and I’ll see you in the next one.