Binance Futures — How To Trade 125X Leverage Safely? #BinanceFuturesTurns3
Binance Futures allows you to use up to 125X Leverage but the problem is that some people don’t understand leverage properly. They think low leverage such as 2X, 5X, or 10X is safe and if anyone is using 50X, 100X, or 125X they are just gambling.
I have also seen so many peoples on social media that even after getting a trade setup (with entry and stop-loss price) they ask what leverage I should use.
If you’re one of those who don’t understand leverage, don’t worry. In this article, I will try to explain the proper use of leverage in detail. If you don’t have a Binance account, you can create one using my referral link to get $300 Welcome Bonus.
Two Different ways to use Leverage.
You can use leverage the way you want but I will explain to you the two different ways to use leverage.
1. The wrong way to use leverage.
The first (or wrong) way is where you increase the leverage and buy whatever amount you think is good to earn extra profit.
For example,
BNB Price → 250 USDT.
Binance Futures Wallet Balance → 100 USDT.
Plan → No Plan, Just Expectation.Usually, You can use:
A) 10X Leverage to open 1000 USDT (or 4 BNB) Position.
B) 25X Leverage to open 2500 USDT (or 10 BNB) Position.
C) 100X Leverage to open 10000 USDT (40 BNB) Position.
etc…
Now suppose, you choose any leverage of your choice to open 10 BNB (or 2500 USDT) position. If the price of the BNB coin will go in your expected direction, you will feel very happy because you will earn a very good profit.
However, in case the price of the BNB will go in another direction than your expected direction, you will feel angry and frustrated because you didn’t have any plan, you were just hoping for the best result in this position.
This is an incorrect way to use leverage. If you’re using leverage like this, you will lose all your amount sooner than later.
2. The correct way to use leverage.
The correct (or second) way to use leverage is with calculated position size. Here, You don’t just blindly jump into a position, you plan before executing.
What is Position Size?
The total value of an open position is the position size. For example, If the current price of a BNB coin is 250 USDT and you open 4 BNB Position that means, the position size of this position is 1000 USDT (250 USDT * 4 BNB).
How To Calculate Position Size?
Position size calculation should depend on how much risk you’re willing to take per trade. 1% to 3% risk per trade is safe for most people and can also help you to compound your balance without losing a big amount.
For example,
BNB Price → 250 USDT.
Binance Futures Wallet Balance → 100 USDT.
Risk Per Trade: 2%.
Plan → Entry Price — 250 USDT, Stop Loss — 248 USDT, Take Profit — 260 USDT.
Now suppose, you want to open a scalp position as per the above plan so you need to buy 1 BNB coin to risk only 2 USDT (or 2%) in this trade.
The current price of the BNB coin is 250 USDT and the Stop Loss is 248 USDT so if the Stop Loss will hit, you will only lose 2 USDT (excluding trading fees). You can also use the Binance Calculator to calculate the position size.
If you will trade with a calculated position size, you will never feel emotional, angry, or frustrated because you are following proper risk management.
Also, You can use whatever leverage you want and your risk will be always the same. However, the margin will change depending on the leverage you use.
For example,
BNB Price → 250 USDT.
Binance Futures Wallet Balance → 100 USDT.If you will use 5X Leverage to Buy 1 BNB Coin, Your margin will be 50 USDT because 50 USDT * 5X Leverage = 250 USDT.
If you will use 10X Leverage to Buy 1 BNB Coin, Your margin will be 25 USDT because 25 USDT * 10X Leverage = 250 USDT.
If you will use 50X Leverage to Buy 1 BNB Coin, Your margin will be 5 USDT because 5 USDT * 50X Leverage = 250 USDT.
As you can see in the above example, increasing the leverage will decrease the margin but every time you’re buying 1 BNB, which means position size is the same on all three that’s why risk will also be the same in all three.
I know you don’t earn a very big profit when you trade with proper risk management but proper risk management also helps you to compound your balance without losing a big amount.
Why High Leverage is Risky in Isolated Margin?
Now you would have understood how you can use high leverage without increasing the risk but using high leverage in an isolated margin is still risky.
When you open any position in the cross margin, your full wallet balance works as a margin but in the isolated margin Binance opens a position using only the initial margin and the rest amount will be separate from the position.
For example,
ETH Price → 1000 USDT.
Binance Futures Wallet Balance → 1000 USDT.
Risk Per Trade: 2%.
Plan → Entry Price — 1000 USDT, Stop Loss — 980 USDT, Take Profit — 1050 USDT.
Now suppose, you want to open a scalp position as per the above plan so you need to buy 1 ETH coin to risk only 20 USDT (or 2%) in this trade.
If you will use 100X Leverage to Buy 1 ETH Coin in Cross Margin, Your margin will be 10 USDT but the rest 990 USDT of your wallet will also work as margin.
However, in the isolated margin, Binance will assign only 10 USDT to open ETH position and it will leave the rest 990 USDT of your wallet untouched.
This means the liquidation price will be closer than the stop loss price in the isolated margin and the position will be liquidated instead of hitting the stop loss.
Obviously, after opening the position you can add more margin to move the liquidation price below the stop-loss price. However, you might not be able to add margin in volatile market conditions.
You can read this article to understand the difference between cross and isolated margin in detail.
What’s the use of 125X Leverage?
Now you will ask what’s the use of 125X leverage in Binance if you can open most trades within 20X or low leverage.
Suppose currently, you’re holding two positions and both positions are in good profit. Now you want to open more positions but you don’t have enough margin to open any new positions and also you don’t want to close current active positions.
So what you can do is you can increase the leverage of your current active positions and you can also move stop loss in profit or break even. After that, you will have enough margin to open more positions. This is just an example. There are so many ways to use high leverage.
Tips
Leverage helps you to earn more money but you shouldn’t use leverage as a money printing machine. You need to understand that no matter how much funds you have in your trading account, one wrong trade can make it zero.
One more thing before ending the article, high leverage cannot increase your profit, profit or loss always depends on the position size. However, you will see different profit or loss percentages depending on the leverage you use.
Now, This article has come to an end. I hope you found this article helpful. However, if you still have any queries or questions, please ask in the comment section below.
