How To Trade Binance Futures: Everything You Need To Know

How To Trade Binance Futures: Everything You Need To Know

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Binance Futures are one of the latest exciting additions to the world of cryptocurrency trading.

No matter what your current comfort level with Futures is right now, by the end of this article you will feel confident trading and have a solid foundation for fine-tuning your understanding.

Why are Futures great?

Futures are key as they give you have the ability to go long or short on your positions. This allows you to turn a profit regardless of which direction the market is moving.

It also gives you access to leverage. With leverage, you can open larger positions with the same investment by borrowing from the exchange. This means bigger wins but also bigger losses.

What are Futures?

Most likely until now, whenever you’ve bought or sold cryptocurrency, you’ve done so via “spot trading”.

In spot trading, when you press buy, you are matched with someone who is selling. They get some of your coins (eg. USDT) and you get some of theirs (eg. BTC). The deal is settled right now — on the spot.

In Futures trading, when you press buy, you are also matched with someone who is selling. The difference is that instead of exchanging coins right now, you agree to a contract which says you will settle later— in the future.

When in the future? Actually, never. Binance uses perpetual contracts, which have no set future date. They continue indefinitely until you decide to close the contract.

What does this mean? Surprisingly, it means that buying and selling actually feels very similar to spot exchanges. The key difference being that you can now “have” a negative amount of coins.

You enter a long position when you buy.

You enter a short position when you sell.

While this might seem complicated at first, it isn’t actually that bad. You just press buy/sell and behind the scenes a contract is created automatically. You keep track of your positions in the Open Positions table.

Getting Binance Futures Setup

If you already have Futures setup, you can skip ahead to the next section.

1. Open a Binance account.

I assume you already one, but if not, please open one now.

2. Navigate to the Futures section of the exchange.

The Futures Section of Binance
The Futures Section of Binance

3. Click “Open now” to open your Futures account.

Open Now Button
Open Now Button

4. Transfer money into your Futures wallet.

Click the transfer button on the bottom right and follow the instructions to move USDT between your regular exchange wallet and your new Futures wallet.

Transfer Between Spot Wallet and Exchange Wallet
Transfer Between Spot Wallet and Exchange Wallet

Great, now you’re ready to start trading!

How to use Binance Futures?

Before we dive in too deep, it’s important to make sure you know what leverage and margin are.

Leverage is the multiplier on your position. For example, if you only have enough to buy 0.1 BTC, by using 20x leverage you can buy 2 BTC.

Margin describes how much you have borrowed from the exchange. That would be 1.9 BTC in the example above.

Top Bar

The Top Bar of Binance Futures
The Top Bar of Binance Futures

a) Pair — click on the pair dropdown to choose what you want to trade.
b) Cross — click on “Cross” to choose between two different types of margin (Cross and Isolated). With Cross, your margin balance is shared among all your open positions. That means you are less likely to be liquidated on any one of them, but if you are liquidated, your entire account that is impacted. Isolated, on the other hand, means that this position is not connected with your other ones. It is more likely to be liquidated, but at least doesn’t put your full account at risk.
c) Leverage — click to choose what amount of leverage you want to use. This can be 0–125x for Bitcoin or 0–75x for the altcoins.
d) Mark —this is the essentially just the current price of the underlying asset. For example, the current price of BTC. The Mark price has a specific name because it isn’t just the price from Binance, but the average across 6 different exchanges. This makes it more resistant to market manipulation. It’s also important to note that when liquidations occur, it’s based on the Mark price, and not the price trading on the Futures exchange, even though they will be very similar.
e) Funding — Binance has a clever way of making sure that Futures stay the same price as the spot price. More on this below.

How does Funding work?

In a typical Futures market, the price of the Future contracts can become different from the price of the underlying asset. For example, the price of 1 bitcoin could be 8,000, but the Future for 1 bitcoin only 7,000.

To prevent this from happening, Binance has introduced the funding rate. It pushes the Future price closer to the underlying asset’s price.

How it works is every 8 hours, longs pay shorts the funding rate (if it is positive) or shorts pay longs (if negative). It’s a percentage of your open positions.

The rate becomes larger or smaller, depending on which direction the Future’s price diverges from the underlying asset price (up to a maximum of 0.5%).

You can view how much you’ve been paying or receiving on the Transaction History tab.

Transaction History Tab
Transaction History Tab

Charts and Order Book

The chart section is pretty much the same as spot trading. You can change the size of the candlesticks, add indicators, or even bring up a TradingView chart.

Binance Futures Chart
Binance Futures Chart

The depth and order book are also very similar to spot trading. You can see the buying/selling demand on either side of the current price, as well as a list of the recent trades which have occurred.

Binance Futures Order Book
Binance Futures Order Book

Positions

Unlike spot trading, with Futures, you don’t actually own the coins you’re trading. Instead, you take positions on them.

To add some data, I’ve taken two positions. One BTCUSDT long and one XRPUSDT short, both with 10x leverage.

Positions Tab
Positions Tab

a) Symbol — what position you’re in. Green for longs and red for shorts.
b) Size — how much your position is. In this example, I’m long 0.062 BTC and short 2149.3 XRP.
c) Entry Price — the price at which you bought/sold.
d) Mark Price — as mentioned earlier, this is essentially just the current price. It is the average across 6 different exchanges to reduce market manipulation.
e) Liq. Price — if you trade with leverage, this is the price when your account will be liquidated. Don’t let the Mark Price hit the Liquidation Price, otherwise some of your positions will be closed and you will be charged a liquidation fee from Binance of approximately 0.5%.
f) Margin Ratio — a second measure of how close you are to being liquidated. If it reaches 100%, liquidation occurs.
g) Margin —confusingly, this is actually the required margin. Meaning the amount of USDT locked up in the position. To make things slightly more confusing, when you change the leverage at the top of the page, this amount adjusts accordingly. The reason for this is so that you can easily see how much your position will increase/decrease if you open more longs/shorts.
h) PNL — the profit or loss if you were to close the position right now.
i) ADL —auto-deleveraging is an unlikely event which can happen in extremely volatile markets. When this happens, some positions are reduced to stabilize the market. The reduction happens based on a queue. You can tell your position in the queue by how many bars are lit up.

You can also close your positions from the right side of the row itself.

BTCUSDT (top) and XRPUSDT (bottom)
BTCUSDT (top) and XRPUSDT (bottom)

To close using a limit order, set the price and then press the limit button.

To close using a market order, simply press the market button and your position will close instantly.

On the left of the open positions, there is another way of viewing your margin and keeping track of your risk of liquidation.

Liquidation Risk
Liquidation Risk

On the left of the open positions, there is another way of viewing your margin and keeping track of your risk of liquidation.

Margin Ratio —the same as earlier, when this reaches 100% your positions are liquidated.
Maintenance Margin — a USDT version of the Margin Ratio. It is how much spare balance must be kept in your Futures wallet.
Margin Balance — the amount of USDT in your Futures wallet.
Unrealized PNL — the total profit and loss across all of your positions.

The Margin Ratio is simply the Maintenance Margin divided by the Margin Balance. In this example, 5.2% = 5.47 / 105.16

The take-away here is to keep your Margin Ratio below 100%. Or, equivalently, keep your Maintenance Margin below your Margin Balance.

If it starts getting close add more USDT to your Margin Balance, close some of your positions, or hope that your trades start earning more profit (preferably one of the first two!).

Open Orders

When an order fills it becomes a position. Until then, it sits on the Open Orders tab.

Open Orders Tab
Open Orders Tab

a) Time — when the open order was created.
b) Symbol — what position you’re looking to enter.
c) Order Type — whether the position is Limit, Stop Limit, or Stop Market.
d) Side —sell/short or buy/long.
e) Price — what price you want to open the position at.
f) Filled — how much of the order has been filled.
g) Order Amount — how much the order is for. In this example, 1.734 LTC.
h) Trigger Condition — if you are using Stop Limit or Stop Market, this is the price that triggers the limit/market order to be placed.
i) Cancel — to cancel the open order.

Placing Orders

The top row lets you choose Limit/ Market/ Stop Market/ Stop Limit orders, see your balance, and transfer between your spot exchange and futures wallets.

Let’s look at each of the different order types in detail.

LIMIT ORDERS

Create a Limit Order on Binance Futures
Create a Limit Order on Binance Futures

a) Post-Only vs TIF — these settings give you more control over how your limit order is placed. I’ll go into these in detail below.
b) Reduce-Only — is used to simplify exiting your position. If you are trying to close your short, for example, you can open a long. But if you do too big of a long, it won’t just close your short but also put you into an unintentional long position. Reduce-Only fixes this by ensuring you only reduce your positions.
c) Price and Order Qty — the order price and how much you wish to buy/sell.
d) Quantity Slider — a convenient way for choosing quantity.
e) Cost and Max Buy/Sell—cost is the maintenance margin required to execute the order. In the example above, the cost to buy 0.623 LTC is 0.04 USDT. Max buy/sell is simply the amount you can buy or sell with the current leverage. If you were to drag the slider all the way to the right, then the order would be for 2.234 LTC. If you add more funds to your account or increase the leverage multiplier, then you can increase your Max Buy/Sell.
f) Trade Calculator — a tool for calculating your liquidation price, Profit/Loss and other things for different situations.

Post-Only vs TIF

For Binance Futures, the Maker fees are 0.02% and Taker fees are 0.04%.

Post-Only is used for controlling which fee you get charged.

You can use Post-Only to guarantee either you get the Maker fees rate OR your order doesn’t place.

For example, say that you place a long for 1,000 BTCUSDT contracts at 8,500 USDT. When you place it, the price is 8,501, but as it is being placed the price drops to 8,498.

Without Post-Only,  your order will match with 8,498 and fill, with you paying Taker fees (0.04%).

With Post-Only,  your order will be canceled and you will not buy.

If the price had stayed at 8,501 or gone up, then both orders would have behaved identically. They would have been placed on the order book waiting to be filled.

TIF stands for time-in-force, and is for dealing with the fact that limit orders sometimes don’t fill entirely. There are 3 different settings to choose from.

Good-Til-Canceled (GTC) means your order will sit on the order books forever, unless you cancel it. It is the default choice and pretty good for most situations.

Immediate-Or-Cancel (IOC) means all or part of your order must fill immediately. The unfilled part is automatically canceled. This is useful if you’re creating a large order and don’t want to have to think about the unfilled portions. For example, remembering to cancel them later.

Fill-Or-Kill (FOK) means if the whole order isn’t filled immediately, it is canceled. This is useful if you’re creating a large order and are worried about moving the market. By using FOK, you will either enter entirely, or not enter at all. Avoiding the situation where you’re half in and the price is moving away from you as a result.

The key difference between GTC and IOC/FOK is that GTC can wait to fill, whereas IOC/FOK must happen instantly.

The key difference between IOC and FOK is that IOC can be partially filled whereas FOK must be filled 100%.

MARKET ORDERS

Market orders are very similar to limit orders.

Create a Market Order on Binance Futures
Create a Market Order on Binance Futures

The key difference being that you are not specifying a price. You enter into the long or short position instantly at the current price or worse. Moving through the order book until your order has completely filled.

STOP LIMIT ORDERS

Stop Limit is almost the same as limit except it also has a trigger price. At the trigger price, a Limit order is placed.

Create a Stop-Limit Order on Binance Futures
Create a Stop-Limit Order on Binance Futures

a) Trigger Price — just like it sounds, the trigger price is the price at which the limit order is placed. For example, when the price hits 9,000, place a limit order for 8,990.
b) Trigger Condition — applies to the Trigger Price on your long or short positions. You can choose to use the Last Price or Mark Price. They are very similar. The Last Price is more sensitive to what’s happening on Binance Futures and the Mark Price is more resistant to market manipulation. It is typically better to use Last Price for your take-profits and Mark Price for stop-losses.

STOP MARKET ORDERS

The last order type is Stop Market. It is similar to Stop Limit, except instead of placing a Limit order when the trigger price is hit, a Market order is placed.

Create a Stop-Market Order on Binance Futures
Create a Stop-Market Order on Binance Futures
Nicely done. That was undoubtedly a lot to take in!
Now for the fun part, let’s look at some examples.

Examples of Trading Binance Futures

1) How to Enter a Long Position on Binance Futures?

Let’s say that we want to go long on BTC.

The current price is ~8,650 USDT and we believe it will go up 10% to 9,515, with a drop below 8,000 invalidating our strategy. We want to use 10x leverage.

Entry: ~8,650
Take-Profit Target: 9,515
Stop-Loss: 8,000

1. Choose Pair and Set Leverage

Pair and Leverage Selection for Long
Pair and Leverage Selection for Long

2. Enter Long

You can use Limit or Market to enter your long. I’m going to choose Market. Make sure that Reduce-Only is not checked and then choose how much you want to buy. Click Buy/Long.

Buy/Long
Buy/Long

Great, now we can see that we are in a BTCUSDT long position.

Open Positions Tab for Long
Open Positions Tab for Long

3. Set Take-Profit

Enter the take-profit sell price and press Limit.

Take-Profit for Long
Take-Profit for Long

The order shows up in our Open Orders table.

Open Orders Tab With Take-Profit
Open Orders Tab With Take-Profit

4. Set Stop-Loss

Go to Stop Market, make sure Reduce-Only IS checked, choose Mark Price (to reduce the chances of stop-loss hunting), set the price to sell at and drag the slider to the right to close the entire position. Click Sell/Short.

Stop-Loss for Long
Stop-Loss for Long

We can see that our stop-loss has joined our take-profit on the open orders tab.

Open Orders Tab With Take-Profit and Stop-Loss
Open Orders Tab With Take-Profit and Stop-Loss

How to Enter a Short Position on Binance Futures?

Let’s say this time that we want to go short on ETH.

The current price is ~168 USDT and we believe it will go down 10% to 151, with a move above 172 invalidating our strategy. We want to use 20x leverage.

Entry: ~168
Take-profit Target: 151
Stop-loss: 172

1. Choose Pair and Set Leverage

Pair and Leverage Selection for Short
Pair and Leverage Selection for Short

2. Enter Short

We’re going to enter with a Market order. Make sure Reduce-Only is not checked and then choose the amount. Click Sell/Short.

Sell/Short
Sell/Short

We can see that we are in a ETHUSDT short position.

Open Positions Tab for Short
Open Positions Tab for Short

3. Set Take-Profit

Enter the take-profit exit price and press Limit.

Take-Profit for Short
Take-Profit for Short

The order shows up in our Open Orders table.

Open Orders Tab with Take-Profit
Open Orders Tab with Take-Profit

4. Set Stop-Loss

Go to Stop Market, make sure Reduce-Only IS checked, choose Mark Price (to reduce the chances of stop-loss hunting), set the price to exit and drag the slider to the right to close the entire position. Click Buy/Long.

Stop-Loss for Short
Stop-Loss for Short

We can see that our stop-loss has joined our take-profit on the open orders tab.

Open Orders Tab With Both Orders
Open Orders Tab With Both Orders

Conclusion

Nicely done! You should now have a pretty good idea of why Futures are useful, how they differ from Spot Trading, and how to trade them on Binance.

Feel free to bookmark this article in case you want to reference any of the terms again.

Happy trading,
Team Signal

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