Since the pandemic, interest in cryptocurrencies has continued to rise, with more and more people exploring contract trading on exchanges like Binance or Bybit.
Some traders, including myself, have even achieved amazing returns. I used just 300,000 Korean won and made 300 million won in two years.
This article will explain the core concepts that every Binance contract trader should master.
Funding Rate
In contract trading, you must choose a direction - long or short.
Going long means you are betting that the price of the currency will rise.
Shorting is betting that the price of the currency will fall.
Due to different market sentiments, there often exists an imbalance between long and short positions. To maintain market balance and liquidity, Binance employs a 'funding rate' mechanism.
In simple terms, the funding rate is the fee that traders pay or receive to balance the market.
If the bulls are in the majority, they need to pay the funding fee to the bears (displayed as + in the app).
If the bears are in the majority, they need to pay fees to the bulls (displayed as - in the app).
Binance updates the funding rate every 8 hours, allowing you to view market sentiment in real time.
You can also view historical funding fees and trading performance through the 'PNL Analysis' interface.
Leverage Settings
Leverage is often referred to as the 'core' of contract trading, allowing you to control larger positions with smaller capital.
For example, the maximum leverage for BTC is 125 times.
Most altcoins support a maximum leverage of 100 times, depending on the currency.
However, the higher the leverage, the greater the risk, and the funding fees and trading fees will also increase accordingly.
Here's a simple example:
With 10x leverage, if the funding fee is 0.01%, you need to pay 0.1% every 8 hours.
Assuming the maker fee is 0.2% and the taker fee is 0.5%, then with 100x leverage, you will pay 2% to 5% in fees for each trade.
This is also why many traders find that 'the fees are higher than the profits'.
Suggestion: Start with a low leverage of 2-3 times, which is safer and helps adapt to the market.
Difference between Full Margin and Isolated Margin modes
For beginners, one of the hardest concepts to understand is the difference between full margin (Cross) and isolated margin (Isolated) modes.
In full margin mode, your entire contract account balance serves as margin. If liquidation occurs, you may lose all funds.
In isolated margin mode, only the margin for that position will be used for trading. In the event of a liquidation, you will only lose the principal of that position.
For example:
If you use 1 million Korean won for a 10x leverage operation, and the price drops by 10%, you will face a -100% loss.
In full margin mode, the system will use the remaining funds in your account for margin calls.
In isolated margin mode, you only lose the margin invested in that specific trade.
Tip: If you are a beginner in contract trading, it is recommended to use isolated margin mode to reduce risk.
Binance contracts are powerful, but they also come with high risks. The market can change rapidly, especially in full margin mode, where high leverage can lead to liquidation.
Understanding the differences between funding fees, leverage settings, and margin modes can help you use the platform more safely and efficiently.
Not registered on Binance yet? Click the link below to enjoy a 20% fee discount:
👉 Click to receive a 20% fee discount on Binance
Not only new users, but existing users who meet the following two conditions can also enjoy a 20% transaction fee discount:
The user has already registered a Binance account.
The invitee has never accepted any invitation before.
The invitee's account has not conducted any trades or used Binance services in the past 180 days.
Eligible invitees will see a confirmation window pop up after opening the invitation link and logging in.
The binding will take effect after the invitee clicks 'Bind Now'.
Meet the conditions to enjoy an additional discount, don't miss this money-saving opportunity!
It may seem complicated at first, but with practice, you will quickly master it.
Wishing you successful trading and profits soon!