Cryptocurrency has always been a highly volatile asset class. As such, traders new to the asset class often wonder whether or not they can bet against a cryptocurrency, and whether or not it is possible on Binance.
It is possible to short a cryptocurrency on Binance. In order to do so, you will need a margin account. Your margin account will operate separately from your spot account, and you will be charged interest on the currencies that you borrow.
Binance, despite being one of the largest crypto exchanges, has a fairly counterintuitive interface. As such, let’s take a deeper look at how to short on Binance.
How to Short on Binance Using a Margin Account
First of all, you need to create a margin account if you don’t already have one. A margin account grants you the ability to trade on leverage. This means you can borrow currency from the exchange, allowing you to bet against it.
When you trade on margin, you only put up a percentage of the total trade. The rest is put up by the broker/exchange (in this case, Binance). This is known as leveraging your trade. Remember that leverage will amplify both your returns as well as your losses.
Opening a margin account on Binance is easy. Once you have logged in, click on the wallet button on the top right-hand side. Then, click on “Margin Wallet”. Here, you will be able to open a margin account as long as you have two-factor authentication set up. Then, you can transfer currency from your spot wallet to your margin wallet.
On a standard Binance account, you can opt for 3x or 5x leverage. Initially, your account is allowed 3x leverage. However, you can upgrade to 5x leverage if your total debt is less than 1 BTC and your margin level is above 1.25. Conversely, you can switch back to 3x if your margin level is above 1.5.
How to Create a Short Order on Binance
Once you have transferred funds to your margin account, you can borrow against the total equity of your account. Head to the trading screen and select a pair involving the borrowed currency. Remember that only certain pairs can be traded using a margin account. The “M” tag in the pair selection window shows all available pairs that allow leverage.
Once you have selected the correct pair, look at the order window. You will be able to see three options: Normal, Borrow and Repay. In order to short a currency, you need to select the ‘Borrow’ option in the ‘Sell’ tab.
Depending on the equity of your account and the leverage selected, you will only be able to borrow up to a certain amount. Input the amount that you want to short and select your order type. Finally, confirm your order.
In the screenshot above, you can see I am placing a market order, shorting LTC against BTC. As soon as I click ‘Sell’ and confirm my order, I will begin accumulating hourly interest on the amount that I borrowed.
When you want to exit your position, you need to do the reverse. Open the same currency pair. This time, buy the currency that you shorted and select the ‘Repay’ option.
Here, you can see me buying back 0.17 LTC. The reason I bought back slightly more than I initially sold is because of the interest. In order to be sure that your trade worked, head over to your margin wallet and make sure you paid back the borrowed amount.
Be Wary of Your Margin Level
As stated above, margin trading is risky. It is important to make sure that you have not borrowed an excessive amount relative to your account equity. Luckily, Binance makes that easy.
To the right side of your Margin Wallet, you can see your margin level. With no funds borrowed, it is at 999. However, it will start dropping when your positions begin losing money. If it gets into the red zone, then you will have to meet a margin call. A margin call will require you to either deposit additional funds or exit some of your leveraged positions.
For a 3x leveraged account, you receive a margin call at a 1.30 margin level. For a 5x account, the level is 1.15. Remember that if your margin level drops far enough, your positions will automatically close and your account will be liquidated. The liquidation level is 1.10 for a 3x account and 1.05 for a 5x account.
It is always a good idea to keep your margin level above 1.25. The worst thing that can happen is you preemptively exit a position which will eventually be profitable!