How To Trade Leveraged Tokens on Binance Exchange

Binance exchange provides a remarkable experience with leveraged tokens. Here are the vital insights.

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Margin trading is a risky business where profit margins are paper-thin. That’s a fact. While hundreds of thousands of people have dabbled into the market, be it via forex or cryptocurrencies, the truth still remains: Making a living out of regular margin trading can be extremely difficult, if not impossible. Moreover, a single mistake can completely destroy your position, sending you back weeks or months.

Due to the extremely thin profit margins, leverage trading is also a common practice: In this model, a user receives an amount of money for trading that’s several times higher (Usually 5x or 10x, though in some cases much larger) than the amount of money they have. They are then allowed to trade with that money, with the caveat that if they lose an amount of money equal to their initial amount (their leverage) they must immediately liquidate their position and pay back the loan.

Leveraged tokens are an attempt to help with this complicated process. Instead of having to ask for leverage and then invest using it, you just buy leveraged tokens. Leveraged tokens have their value semi-pegged to that of another crypto token… except their value changes at 2-3x the rate.

In other words, if you want to try leverage trading, using leveraged tokens make the process much easier by getting rid of the middleman and allowing you to multiply your gains (or losses) automatically.

How do Leveraged Tokens on Binance work?

First of all, not every token that’s traded on Binance works as a leveraged token. Not all tokens have a leveraged equivalent, either. As with other Binance programs, like pegged tokens, leveraged tokens are only offered for a handful of cryptocurrencies – naturally, the ones that see leverage trading more often, and thus where there’s a market.

An important thing to note is that a leveraged token isn’t equivalent to the actual token. A Binance Leveraged Bitcoin, for example, can’t be used to make Bitcoin purchases. They’re essentially a separate token, whose value is pegged to that of Bitcoin.

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Knowing that, the process is simple: You can buy or trade leveraged tokens on Binance in almost the same way you can buy or trade the actual tokens, with the only difference being that the leveraged token’s daily change will be steeper. For example, if the price of a Bitcoin goes up by $1,000 during a trading session, the price of a Bitcoin-based BLVT will go up by $2,000-$3,000.

Sounds like easy money… Where’s the catch?

There isn’t much of a catch in the sense that there’s no small print that will make you lose your money. However, one thing you’ll have to know is that leveraged trading tokens are rebalance every day to make sure the relative value to the base token holds.

What does this mean? Well, it’s simple. Say, a BTC leveraged token (we’ll call it BTCL) releases today, with the initial exchange being 1BCT = 1BTCL. At the end of the first day, BTC gains 10% of its value. Since BTCL was set to 3x leverage, that means that at the end of that day 1.3BTC = 1BTCL.

That works for a single day. However, as more days go on, problems start arising: First, because maintaining the same ratio over many trading sessions can get difficult – what started as a 3x leverage can easily balloon into much higher values after successive positive sessions, for example. But more importantly, because the exchange needs to have liquidity so they can perform token payouts.

This directly affects the value of the token, as one would expect. In many cases, this will make earnings somewhat smaller over a longer period than the actual accumulative. It can also make losses smaller over a longer period in the same way. Due to how the market and rebalancing works, it can also create losses even when the original token’s price variation evens out to 0% (that is, if price goes up, then down, over two separate sessions.)

Rebalancing is important to maintain liquidity and keep the reference existing, but you need to look into how your exchange does it to know exactly what to expect. For more information, see the “Volatility decay” section in Binance’s own website.

Alright. What else is there? Why should I trade on Binance and not elsewhere?

Your choice of trading company is entirely yours, and people tend to have vastly different preferences depending on their goals. However, Binance does offer a few things to their leverage traders that might sway your opinion:

Tiny trading fees. Binance leveraged tokens exist in Binance’s own blockchain – and, as usual for Binance operations, its own intra-blockchain trades have much smaller fees than extra-blockchain ones. Obtaining Binance Leveraged Tokens will result in a much lower fee than obtaining the tokens themselves, on top of the extra earnings.

Constant leverage rebalance. While other exchanges only rebalance the token value, Binance also changes the leverage for each trading session depending on how the token has been faring. Generally, this means the leverage will flow between 20 and 30% depending on the current market, but it can also go higher or lower at times.

High Market Liquidity. Binance is one of the crypto exchanges with the highest liquidity in the world – and thus they have enough crypto in storage to weather almost any market swings. This is important when the market is particularly volatile, since smaller exchanges with lower liquidity could run into issues if prices vary widely in an unexpected manner. For Binance, this shouldn’t be a problem.

Conclusion

The market depth of cryptocurrencies is improving and there are more ways to trade and explore digital currencies.

With Binance LVT, you can take more positions and reap rewards. As exciting as the crypto market might be, never forget that it is high risk, and only invest what you can lose and still be able to get a good night rest.

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Are You Looking To Finance That Cryptocurrency Project ? Here Are The Leading IEO Options You Need To Know

IEO is a major means of business finance in the crypto scene. Here is how this works in two of the leading crypto exchange.

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The crypto scene has witnessed a surge in several projects with some merely riding the crypto wave, and others making a real global impact. The most notable projects, for all we know, have come off the Ethereum blockchain due to its versatility, and we can only expect more to unfold in the coming months.

Do you intend funding a crypto project in the remainder of 2020? If yes, you must first know that, at the moment, there are a plethora of projects out there, and it can be overwhelming to just pick one and fork out liquidity. Hence, the need to focus on the legitimate cryptocurrency projects whose uses cases are providing massive global value.

Let’s take a look at the top 2 leading platforms to explore when funding a crypto project. This two are by no means the best, but they are platforms that have continued to generate positive feedback and push the usage of Ethereum and the general adoption of cryptos.

Read Also: The Rise and Rise of DeFi, And All You Need To Know About The 3 Leading Yield Farming Global Platforms

Binance Launchpad

Binance Launchpad is the exclusive sales platform of the Binance Ecosystem where tokens are launched and traded – more like a fundraising event. Binance users on this platform are afforded the opportunity to invest in new and transformative projects using their Binance Coin (BNB).

The idea is to ensure that projects can be continually funded with the liquidity obtained from Binance users, to drive the mainstream adoption of cryptos. Some successful crypto projects on this platform’s launchpad include Band Protocol, Kava, Troy, WazirX and Cartesi.

Why Should You Explore Binance Launchpad?

The Binance launchpad enlists projects and provides in-depth reviews about every single one of them via its research centre. These projects are open to all Binance users and investments can be acquired through a lottery token system.

However, prior to enlisting a project on the Binance Launchpad platform, it is subjected to a rigorous verification process to ascertain its compliance with the established Binance standards.

This platform ensures that the crypto project is:

Made up of a goal-oriented team;

Relatively matured and in the developmental stage;

Ready for large scale operation

Poised for expansion towards a larger crypto ecosystem

Post-verification, the project is then hosted and made available to verified users of the platform. It is good practice to have a thorough read of the report provided on any project before sanctioning any kind of investment. Taking the advice provided by the research centre to heart will help guide your decisions and ensure that your first Binance Launchpad investment is successful.   

Bitmex IEO Launchpad

Bitmex IEO Launchpad is another leading platform to explore when looking at funding a crypto project. Exchanges host crypto projects on their platform to attract massive interest, while also keeping up with the demand of the market – Bitmex is no different.

Let’s examine what “IEO” means for Bitmex Launchpad, and how it makes it the place to go when looking at funding crypto projects.

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IEO and Bitmex Launchpad

Initial Exchange Offering or IEO for short is a token trade held on crypto exchanges. Depending on how an Initial Exchange Offering is planned, it works seamlessly on several crypto exchanges.

IEO enables the Bitmex Launchpad platform to create a pool where developers trade crypto projects and tokens with investors and enthusiasts. In contrast to ICOs, IEOs have been generating more positive reviews, ad they are a better alternative, hence, the peculiarity of the Bitmex Launchpad platform.

Why Should You Explore Bitmex IEO Launchpad?

Just like with the Binance Launchpad platform, projects are painstakingly reviewed to ascertain their authenticity and reliability based on certain pre-established conditions. Once the project meets the set criteria, the Bitmex IEO Launchpad team will go on to announce token sales and the price per token.

Additionally, IEO platforms are user-friendly and they improve trust levels among crypto projects. IEO tackles the problem of poor returns on investment experienced by ICOs.

You Must Read: As The Crypto Spring Becomes Evident,Here Are The Top 3 DeFi Leaders In H2 2020

How Leverage Trading Works When You Use The Binance Cryptocurrency Exchange

Cryptocurrency trading is no longer new in many parts of the world. Leveraging on crypto is , however, just taking a foothold in the global financial markets. Here is a lead on how this works.

Leverage trading (or margin trading, as it is more often known) has hit a new high in the last two years, with companies and groups dedicated to forex selling it as a way to make money with relative ease.

While most people who are into margin trading do it on forex, there’s a booming market for it in cryptocurrencies. This market is easier to enter and less complicated than the forex market, and it effectively works 24/7/365. The crypto market is presently worth more than $320 billion.

How does leverage trading work?

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Leverage trading plays out in making short-term, usually low-earning trades using a mixture of your own money (your “leverage”) and money lent to you by the exchange.

Depending on the exchange and your own standing, you can be allowed to trade five, ten, or even a hundred times the amount of money you have as leverage. As the value you’re trading increases so do the profits – thus allowing for potentially paper-thin earnings to become sizeable.

Naturally, leverage trading doesn’t work as an actual loan – that is, you can’t actually lose the money you’re loaned. Instead, you’re allowed to invest using that money as long as your total loss is equal to or lower than your original leverage.

Let’s use an example. Say, you have $1000 and get approved for a 50x leverage, letting you invest up to $50,000. That’s great, right? You use those $50000 to buy Bitcoin, which is sitting at $5,000/token and you expect will go up.

But instead it starts going down. The way leverage systems work, you won’t be able to sit and look at those $50,000 become $40,000 then $30,000 then $20,000 and so on. The way leverage trading works is simple: As soon as you lose your initial investment (which here would be $1000,) you must sell. So the moment your BTC investment hits $49,000, it’s time to go. That way the money you’ve received can be repaid without you ending up in debt.

What role does Binance play here?

While Binance is far from the only crypto exchange offering leverage trading, it is the largest one to do so. The fact that Binance is not only large, but also trustable, makes it the best place for newcomers to margin trading or crypto to enter the market.

How does leverage trading on Binance work?

While Binance has long been criticized for being too lax on identity theft prevention and at times not following the rules established by some of the countries its clients come from, leverage trading on Binance is considerably more regulated than standard operations in the exchange.

In order to open a margin trading account, you must have completed Binance’s identity verification (KYC) process and you can’t be a resident of a certain set of countries. Specifically, residents or nationals from Iran, North Korea, Cuba, Crimea, Canada, Japan, South Korea and the United States and all its territories can’t partake on leverage trading on Binance.

Also Read: Investing in 2020: what you need to know

This scenario above follows both international rulings regarding sanctions against certain countries (Such as Iran, NK, and Cuba) and local rules and regulations regarding margin trading, as is the case with the USA.

Once you have completed KYC requirements, however, getting a leverage trading account on Binance is quite easy: Just go to your account dashboard, select your balance, then click on “margin.”

What do I do once I have an account?

Binance’s leverage trading works using your own funds already in Binance. All you have to do to fund your account is go to your wallet, and once there select the “margin” option, and then “transfer.” You’ll then be asked which currency you want to move to your margin wallet and the amount – the transfer is immediate and incurs no fees whatsoever.

Do note that Binance’s margin trading system doesn’t support fiat currencies. However, it does support stablecoins, such as Binance’s BUSD, whose values are pegged to those of fiat.

Once you have moved the funds to your margin trading account, you can start trading – however, you won’t be getting any leverage off the bat. In order to activate leverage trading, you have to go to your wallet and select the “Borrow/Repay” option. Binance offers a default 5x leverage, so the most you can get is four times what you already have.

Also Read: Which Cryptocurrencies Should You Invest In 2020?

From then on, you’ll have the money in your account to use as you see fit. You can only use the leverage money for margin trading, and you’re expected to always keep enough funds in your account to repay what you owe.

To help you with this, Binance gives you an indicator of how risky your current position is according to your total debt and the collateral you hold in your account. The indicator uses a formula that goes as follows:

Margin Level = Total Asset Value / (Total Borrowed + Total Accrued Interest)

The closer the result of this goes to 1, the riskier your position is. If your value reaches 1.1 or below, Binance will immediately liquidate all your assets to pay your debt. If this happens, you’ll be notified of it immediately – in fact, you’ll receive notifications as your position grows riskier so you can take steps to prevent further losses yourself.

Do I keep all my earnings?

No, you don’t. While you get to keep most of what you make while margin trading (since you’re the one taking the main risk,) Binance charges an interest rate on your borrowed money. This rate varies depending on the currency and changes regularly. For updated rates, you can refer to Binance’s own interest table and Start trading with a new account.

Conclusion

Cryptocurrency trading is rated as highly volatile with the window for gains and losses swinging either way. You can make the most of your crypto gains with a bit more care, adherence to rules, and above all, continuous learning.