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A Complete Guide on Binance Futures Trading

Binance, the popular cryptocurrency exchange platform launched in 2017, has over the years grown from being a humble exchange to a behemoth offering a variety of financial instruments. In this post, we’ll focus on one of the most popular crypto trading investments, on both the Binance platform, and in the broader crypto trading world – Futures. Let’s take a deep dive into what traders stand to gain with a closer look at one of the fastest growing platforms in the crypto world right now – Binance Futures.

You can even watch a tutorial video explaining all the features.

Binance and Binance Futures

Binance offers users more than 150 crypto assets for trading, including BTC (Bitcoin), ETH (Ethereum), LTH (Litecoin), and Binance’s own crypto token – BNB or Binance Coin. Since launch, Binance has gained massive popularity among the crypto community for four primary reasons-

  1. excellent standards of security,
  2. high market liquidity, 
  3. relatively lower transaction fees compared to its incumbents, and
  4. high processing capacities (the system is capable of processing about 1.4 million orders in a second).

Binance recently launched its futures trading platform named Binance Futures. Trades on Binance Futures occur quite similarly to the general Binance exchange platform, with a few notable exceptions. 

But before we get into the workings of Binance Futures, let’s take a detailed look at what crypto futures are about, shall we? 

What are Crypto Futures?

Well, first, we are going to find out what futures are. In the simplest of words:

Futures are derivative products – a contract where counterparties agree to buy or sell a particular asset at a certain price on a specified date and time in the future.

So futures allow counterparties to trade upon the projected future price of an asset. 

Once a futures contract has been agreed upon, all involved parties must carry through with it at the predetermined price, regardless of the product’s market price at the time of the contract’s termination. While this might or might not turn out to be a profitable bargain, it’s important to keep in mind that the whole point of a futures contract is risk mitigation, and not increased profits. A futures contract works as a buffer when it comes to the ever-changing prices of particularly volatile assets that are traded frequently. Futures exchanges are necessarily the platforms where futures contracts are traded and sealed. 

When it comes to crypto futures contracts, the counterparties wager on the price of a particular crypto coin at a certain point in time in the future. The great thing about crypto futures is that they allow investors to bet on the price of cryptocurrencies even without owning them, so they also enable people who cannot trade in the actual cryptocurrencies because of location-specific issues to bet on the prices of said cryptos. 

Crypto futures work the exact same way as the futures that speculate on the prices of tangible assets.

By forecasting whether the price of a particular crypto would rise or fall at a specific time and date in the future, investors can decide to go for a long or short position on a crypto futures contract.  

How to Open a Binance Futures Account:  

Before opening a Binance Futures account, you’d need to open a regular Binance account. If you don’t already have one, you can use the Binance app, or go to the official Binance website and follow these steps:

  1. Click on the ‘Register’ button at the top right corner of your screen.
  2. Enter your email id and create a safe password. 
  3. Go through the Terms of Use, then click on the checkbox.
  4. You should receive a verification email soon enough. Now follow the instructions in the email to complete your Binance registration.

Now that you have a Binance account, you can click on the Futures option you should see at the top of the page if you’re on the website, or you can click on the Futures icon you’d see at the bottom of your home screen on the app. 

Figure 1: The Futures Page on the Binance App

On the Futures page (see figure 1), clicking on the buy/sell button will prompt you first to open a Futures Account.

Figure 2: Opening Futures Account on the Binance App

As you may note in figure 2, there’s a Referral ID field. Here you can enter CoinCrunch for a 10% discount. Then go through the Reminders shown on the page, click on the Futures Trading Guide checkbox, and tap the Open Futures Account box. 

And you’re all set! Now you’re ready to trade on Binance Futures!

USDT and Coin Margined Futures

Margin trading, or leverage trading, is a feature available on Binance Futures that allows a trader to ‘leverage’ a certain amount by which a trader can multiply their position. So if a margin trader opens a trade with 100X leverage, both their exposure and potential profit would multiply by 100 times.   

As of right now, Binance Futures product offers two types of futures- USDT-margined and COIN-margined futures contracts.

With the USDT-Margined futures, the contracts are settled in the stablecoin USDT (a cryptocurrency that holds the same value as the USD, so 1 USDT= 1 USD).  Binance futures offers Perpetual futures contract to trade as well. Unlike the usual futures contracts, they also allow you to hold positions without an expiry date for the contract. 

Figure 3: USDT-m (USDT-Margined) Futures

Each USDT-margined futures contract specifies a ‘contract unit,’ or the quantity of a  base asset delivered for a single contract. For example, the BTC/USDT futures contract represents only one unit of its base asset.

As for the COIN-Margined futures, those contracts are termed and settled in underlying crypto assets, instead of holding a stablecoin like USDT as collateral. COIN-Margined futures offer a feature named a ‘contract multiplier’, which represents the value of a contract. For instance, each BTC contract represents 100 USD. 

Figure 4: Options Available for COIN-m (COIN-Margined Futures)

COIN-Margined futures contracts can be without an expiration date (a perpetual contract). They can be time delivery contracts, as they can have expiration dates- they usually last quarterly or bi-quarterly.

Which brings us to our next topic of discussion: what are time delivery/expiry and perpetual futures contracts?

Time Delivery Futures Contracts and Perpetual Futures Contracts

In figure 5, you can see there are three types of BTC/USD COIN-margined futures- quarterly, bi-quarterly, and perpetual. Now, the BTC/USD contracts that run quarterly or bi-quarterly are time-delivery/time-expiry contracts, as in they have a particular expiration date counterparties agree upon.  

Figure 5: BTC/USD COIN-Margined Futures

And then there’s the perpetual futures contract. The word perpetual means permanent or timeless. A perpetual futures contract is slightly different from a regular futures contract.

A perpetual contract does not have an expiry date, so when you open a long or short position, you are allowed to hold on to that position for an indefinite amount of time.

That is, of course, unless your position gets liquidated.

Funding Rate on Perpetual Futures Contracts

You might be wondering how one makes a profit out of a perpetual futures contract. With perpetual futures contracts comes an instrument called the Funding Rate. It ensures the price of a perpetual futures contract is staying as close as possible to the underlying crypto asset’s price. 

The traders on the exchange transfer funds to one another based on their open positions and the price distinction between a perpetual future contract’s value and the underlying crypto’s value is what decides which trader gets paid. As you can see in figure 6, it says when it’s time for the next funding, if the Funding Rate is positive, the long position holders pay the shorts. And if the Funding Rate is negative, the shorts pay the longs.

Figure 6: Funding Rate

On Binance Futures, traders pay each other every 8 hours. Therefore, how it works is that depending on your open positions and the Funding Rates, you’ll either give away or receive funds every 8 hours. You can check the time and the probable Funding Rate of the next funding at the top right corner of your perpetual futures contract page.

Types of Orders on Binance Futures

There are different types of orders you can make use of on Binance Futures. In this section, we’re going to discuss five of them.

  • Limit Order: 

Limit orders are orders you place on the order book with a specific limit price. When you place a limit order, the trade would get executed only when the market price reaches the limit price you set, or higher. 

Figure 7: Placing a Limit Order

To set a limit order, you’d need to specify the prices at which you want to buy or sell. In figure 7 we have selected the buy option. Our target price has been set at $10,000, and we have taken a quantity of 0.1 BTC. So as soon as BTC’s price hits the $10,000 mark, the order to buy/open a long position would be executed. 

With limit orders, you can buy at a lower price or sell at a higher price than the current market price. 

  • Market Order: 

Next up is the market order. Market orders are considered the most basic order type; they are essentially an order to buy or sell at the best current price. For market orders, you only need to enter the order quantity. 

Figure 8: Placing a Market Order to Buy BTC
  • Stop Limit Order:

When it comes to the stop limit order, the stop price, or the trigger price, is the price at which an order becomes a regular limit order. The limit price is the price of the regular limit order. So once your stop price is reached, the limit order would get placed.  

In figure 9, we can see a short position is being opened. The stop price is $10,400, and the limit price has been set at $10,380. So now the chances of the limit order getting filled once the stop price is reached are higher. A similar thing happens when you set the stop price lower than the limit price for Buy/Long orders. 

Figure 9: Placing a Stop Limit Sell Order
  • Stop Market Order: 

A stop market order functions similarly as the stop limit order, with one difference: once the stop price is reached, a market order is placed.

  • Trailing Stop Order: 

A little more complicated than the rest of the order types, a trailing stop order essentially makes sure you gain profits while also minimizing the probable losses you might suffer on your currently open positions. When you open a long position, the trailing stop goes up with the price rise, but if the price goes down, the trailing stop ceases moving altogether. And if the price moves a certain percentage (also known as the Callback Rate), a sell order is automatically issued instead. Vice versa for short position.

The Binance Futures Calculator

The Binance Futures Calculator is an absolute necessity for all traders. You can calculate values before you decide to open a long or a short position, plus you can also adjust the leverage slider according to your wishes.

Binance Futures Calculator comes with three tabs, which are:

  • PnL Tab:

 You can enter your entry and exit prices, position size and leverage on this tab, calculate your Initial Margin, PnL (Profit and Loss), and ROE (Return on Equity) based on intended entry and exit prices, and position size.

Figure 10: The PnL Tab
  • Target Price Tab:

In the Target Price tab, you can enter your entry price, ROE, and leverage and calculate what your exit price would need to be for a particular return percentage.  

Figure 11: The Target Price Tab
  • Liquidation Price Tab:

In this tab, you can enter your entry price, intended quantity and your wallet balance, and calculate the approximate liquidation price. 

Figure 12: The Liquidation Price Tab

Risks of Futures Trading

There are some risks associated with the Binance Futures trading that you need to be aware of before you go ahead and join in the fun. We’ll be discussing two of the major risks here: liquidation and auto-deleveraging. 

  • Liquidation: 

When the balance in your Binance Futures account, or your Margin Balance, falls under the Maintenance Margin- as in, the minimum value you’d require to keep your current positions open- liquidation occurs. 

The profits or losses you absorb while trading obviously cause the Margin Balance to change, and the Maintenance Margin varies as per the size of your open positions. So while larger positions require higher Maintenance Margins, the opposite happens with smaller positions. If your Margin Ratio reaches 100%, all your positions will be liquidated; all of your open orders are canceled.

To avoid that situation altogether, you can keep track of your positions. Plus, if the Margin Ratio is close to reaching 100%, it might be a better option to close your position manually instead of awaiting the automated liquidation process. 

  • Auto-Deleveraging: 

If a trader’s account size ever goes below 0, there’s an Insurance Fund that covers the losses. However, when the market is especially volatile, just the Insurance Fund might not prove enough to manage the losses; in that case, your current positions might have to be automatically reduced. This process is known as auto-deleveraging. 

Trading Modes

Binance Futures offers two trading modes right now: Cross Margin trading and Isolated Margin trading.

You may select either the Cross or Isolated trading mode by clicking on the tab near the left hand top corner of an order page, as shown in figure 13. 

Figure 13: Choosing a Trading Margin Mode
  • Isolated Margin Mode: 

Isolated Margin is the Margin Balance allocated to an individual position. The allocated balance can be adjusted for open positions, so if your position gets auto-liquidated in the Isolated Margin mode, you lose only the Isolated Margin balance you allocated to that position instead of your entire Margin Balance.   Plus, if you notice a position opened in Isolated Margin mode is in risk of getting liquidated, you can prevent that by allocating more of your Margin Balance to that position.

So, for instance, say Trader X enters a long position in BTC/USD trading worth $1000 with a 10x leverage, and sets the Isolated Margin for the position as $100. So now if their position does get liquidated, they wouldn’t stand to lose more than $100 out of their Margin Balance.   

  • Cross Margin Mode: 

The other trading mode available on Binance Futures is the Cross Margin trading mode. In this case, all of your margin balance is shared across all of your current positions to avoid risks of liquidation. However, if liquidation does happen in Cross Margin mode, you can end up losing the entire balance in your Binance Futures account, as well as any open positions. 

The Order Form

Now that we have a basic knowledge of how the Binance Futures trading works, let’s take a look at the order form, and the fields you’d be required to fill in before placing a Futures order. 

Figure 14: A Filled In Order Form

As you can see in figure 14, there’s a BTC/USDT futures Buy/Long Market order being placed. While filling in an order form, you’d have to keep four things in mind:

  1. Enter your preferred order type. As you can see in box 1 in figure 14, we have selected a Market Order. You can click on the field for a drop-down list containing all order types to appear. 
  2. Select a trading mode. As seen in box number 2 in figure 14, we have selected an Isolated Margin mode; click on the field for the option to select the Cross or Isolated Margin mode (it’d look like figure 15).
Figure 15: Trading Mode Selection
  1. Adjust the leverage. As you can see in box 3 in figure 14, we have selected a 10x leverage. You can also click on the field to adjust the leverage as per your wish.
Figure 16: Adjusting Leverage
  1. And finally, in box number 4 in figure 14, you’ll find the TP/SL or the Take Profit/Stop Loss checkbox, of which you can also see a close up in figure 17. 
Figure 17: TP/SL Checkbox 

By tapping on the checkbox, you can set your prices in the ‘take profit’ and ‘stop loss’ fields, so that when either of those specific prices are reached, your position gets automatically sold. As you can see in figure 18, we have taken $10,400 as our TP and $10,300 as the SL.

Figure 18: Filled in TP/SL Checkbox

If you look at the picture above, you may notice there’s a Reduce Only checkbox. If you already have an open position, you can click on that box to close that previous position while placing a new order.  

One-Way Mode vs. Hedge Mode in Trading:

Unless you have any open positions, you can change the position mode as per your trading preferences. You can select between two modes, which are the One-Way Mode and the Hedge Mode. 

The One-Way Mode is generally set as your default position mode; it prevents you from opening both long and short positions simultaneously in the same contract. So if you tried to do it in the One-Way Mode, both positions get cancelled. 

The Hedge Mode is the exact opposite, which means you can open both long and short positions at the same time within a singular contract. Hedge Mode is the better option for seasoned traders since it allows you to open quick short positions while also having a long one open, without any of them affecting the other. 

And there you have it! We do hope you now possess a better understanding of the basic concepts of Binance Futures trading! If you’d like to find out more in detail about Binance Futures, you can check out our video explanation here!

And if you think you might be interested in joining and trying out Binance Futures for yourself, you can visit the official website to open a Binance account first, or use the Binance app! 

Happy trading!

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Disclaimer: CoinCrunch.in content is informational in nature and is not meant to be investment advice. Buying, trading or selling cryptocurrencies should be considered a high-risk investment and every reader is advised to do their due diligence before making any decisions. © 2020 CoinCrunch
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