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It’s been a while since Binance opened up the option to margin trade on their exchange. However, I found that their tutorial page lacked some explanation on how this actually worked for entering trades and, perhaps more importantly, how to use margin trading on their platform to short-sell the available assets and being able to make a profit out of dropping prices.
In this blogpost my goal is to solve this problem. For many people it’s still not clear how to short on Binance and through this guide I hope to give a clear and visual explanation of how this works. A Quick shoutout to @CryptoShadowOff on Twitter, who posted a quick tutorial on this as well, which gave me the idea of writing this post:
Step 1) Make sure you have some BTC or USDT in your regular wallet. BTC or USDT can be used for margin trading and Binance basically gives you two separate wallets: one Exchange-wallet for use without margin, and a Margin-wallet which can be used for margin trading. Please know they act like separate entities within the Binance platform.
Step 2) Go to your Margin-wallet and transfer some funds (BTC or USDT) from your Exchange-wallet into your Margin-wallet. Check image 1, 2 & 3 below for a visual representation of how this works.
Image 1: click the ‘Margin 3x’ button in your regular wallet to get an overview of your Margin-wallets.
Image 2: Click the ‘transfer’-button next to the asset you want to move from your regular Exchange-wallet into your Margin-wallet.
Image 3: enter the amount you want to move from your Exchange-wallet into your Margin-wallet and click the ‘Confirm transfer’-button
Step 3) Go to the Margin trading-page on Binance and select the asset you want to trade. Next to the pairings, Binance will show you how high the maximum leverage is that can be used for margin trading this specific pairing. In my example, I will be opening a short on the ADA/BTC pairing, which has a maximum leverage of x5 when margin trading this asset on Binance. Check image 4 for a visual representation.
Image 4: at the top of the page you can go to the Margin-page of the Binance exchange. As with the normal exchange page, you can select the trading pair of your choice on the right.
Step 4) Get used to the different settings and options in the trading menu. You can change your leverage (for example, choose between 3x and 5x), trade normally, borrow and repay. Take note that I transferred 0.05btc to my margin account, but because I am working with a leverage of 3x you can see it shows I can use 0.15btc to buy ADA with. This is the direct effect of margin trading. Check image 5 for a visual representation.
Image 5: Get used to the different options in the trading window.
Step 5) Once you have determined which asset you wish to short, pick ‘Borrow’ at the Sell-side of the trading window. The trading window will show you the amount of ADA you can borrow, which is calculated by the amount of BTC you have on your ‘Margin’-wallet and the chosen leverage. In the images, I will borrow 0.01btc worth of ADA and sell directly at a price of 510 satoshi’s. Check image 6 for a visual representation.
Image 6: Placing a Margin-Sell order by borrowing ADA and (directly) sell for a price of 510 satoshi’s per ADA.
Step 6) You can now see my (short) position in my ‘Margin’-wallet. Because I used a Margin-Sell order, the borrowed 1960ada immediately got sold so this gives me a negative position. I sold ADA I don’t own, I sold borrowed ADA. Check image 7 for a visual representation.
Image 7: my ‘Margin’-wallet will show a negative amount of ADA during this short.
Step 7) Now, to make a profit, we need to Margin-Buy ADA at a lower price-point in order to repay the Margin-Sell order we placed in step 6. In order to do this, we return to the trading window and enter the correct data for the order. Normally, you want to buy back at a lower price-point for profit, in the images I will be buying back at the same price-point of 510 satoshi’s. Check image 8 for a visual representation.
Image 8: entering a Margin-Buy order to get the ADA I need to repay the borrowed ADA I used for selling short.
Step 8) Back in the Margin-wallet, we now have the funds to repay the borrowed ADA. Click the Borrow/Repay button next to the asset of which you want to close the position.
Important! For margin trading, you will borrow funds which need to be repaid. Because of this, you pay interest (fees) for margin trading. The more you borrow and the longer you borrow the asset, the higher the fees will be. This increased risk means margin trading definitely isn’t for everyone!
Image 9: in the Margin-wallet, click the Borrow/Repay button next to the asset you want to Borrow/Repay on.
Image 10: The Repay-window where I pay back the ADA I borrowed to short-sell.
I hope this helps you understand just how shorting works on Binance. Below is a small example of how this trading technique can actually net you a profit from an asset that is dropping in price:
I short 10.000ada at a price of 520 satoshi’s. My target to buy back is 500 satoshi. Here’s the steps I would need to take to make this happen and how it ends up being in profit if my target of 500 satoshi’s gets hit:
- Margin sell (borrow) 10.000ada at 520 satoshi’s for a total price of 0,052btc.
- Margin buy (borrow) 10.000ada at 500 satoshi’s for a total price of 0,05btc.
- Repay the 10.000ada I sold while not owning any.
- The net effect would be a profit of 0,052 – 0,05 = 0,002btc, excluding fees!