Binance Margin and Futures Liquidation Explained Simply! (Debt? Bankruptcy?)

Many people are curious about what happens when liquidation occurs in Binance margin trading. In this article, we will find out what happens when you are liquidated while doing futures or margin trading, and how much debt is incurred.

For reference, liquidation is normal in both futures trading and margin trading. Closing a profit position or closing a loss position is both called liquidation.

Forced liquidation occurs when the position can no longer be maintained.

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What is Binance Margin Trading?

First, you need to know the meaning of Binance margin.

Margin trading is a method of futures trading using coins borrowed from a third party. However, short positions are not possible in margin trading. In other words, you can think of it as simply borrowing money for investment (빚투 - investment with debt) in spot trading.

Because the funds are borrowed from a third party, interest is incurred in addition to the fee, and the profit or loss is characterized by being in the form of a coin.

For detailed differences between Binance margin and futures, please refer to the information written here.에 자세히 적어두었으니 참고해보시길 바랍니다.

For the margin trading method, please refer to the article on Binance Margin Trading Method.을 참고해주세요.

What is Binance Futures Trading?

Binance futures trading is an investment method where you predict the future price of cryptocurrencies like Bitcoin or Ethereum and buy (long) or sell (short).

You can trade without actually holding the coin, and you can manage large positions with small capital by utilizing leverage (up to 125x).

You gain profit from a long position when the price rises and a short position when it falls, but if the direction is wrong, the loss can also be significant, making risk management important.

For the futures trading method, please refer to the article on Binance Futures Trading Method.을 참고하시기 바랍니다.

What Happens When Liquidation Occurs in Binance Futures or Margin Trading

You might think negatively due to the nuance of the word 'liquidation,' but in fact, 'liquidation' in crypto means the closing of a position.

The cases where a Binance margin position is closed can be broadly divided into two: when a profit is being made and when a loss is being incurred.

Liquidation When Incurring a Profit

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Needless to say, you take the confirmed profit. It is a good situation.

Liquidation When Incurring a Loss

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Most people will be curious about this case.

In the case of crypto margin trading, the risk is considered high due to the nature of borrowing + leverage.

For example, let's consider margin trading a crypto asset worth 10,000 USD with 5x leverage. Then your actual capital would be 2,000 USD

In this case, if the price rises by 20%, you gain 100% of 10,000 USD, meaning an additional 10,000 USD profit. However, if the price drops by 20%, you lose all your money. Furthermore, if a 25% loss occurs, a negative loss (debt) will occur.

Therefore, the Binance exchange automatically forces liquidation when your funds reach 0 KRW to prevent your balance from going negative.

Binance Margin Debt?

So, many people wonder if you incur debt when you do Binance margin trading.

To conclude, debt is not incurred. This is because the exchange side forcibly liquidates the position before debt can arise when losses are being incurred.

If you trade using borrowed money (outside the exchange's system), debt may arise.

This aspect is clearly a benefit of crypto exchanges over securities firms.

Binance Margin Interest and Fees

Binance margin interest is a different concept from debt. As mentioned earlier, interest arises because money is borrowed from a third party due to the nature of margin trading.

Therefore, the Binance margin fee is the sum of interest + trading fees, which is generally higher than futures or spot trading fees.

If you are curious about the specific amount of Binance margin interest and fees, refer to the article below.

Below, we will explain the futures trading fees.

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