Binance Leverage Tokens Explained Feature Image

Binance Leverage Tokens Explained – Trade up to 3x with no risk for liquidation

In this crypto trading guide we will explain what Binance leverage tokens are?

We will describe all pros and cons with Binance leverage tokens and why should try this unique crypto trading instrument created by Binance.

Binance is the largest and one of the best crypto and Bitcoin trading sites.

What are Binance Leverage Tokens?

Binance Leveraged Tokens are a unique crypto trading instrument from Binance. They represent tradable assets in the Binance spot market. They will give you leveraged exposure to the underlying asset. 

Each leveraged token represents a basket of perpetual contract positions. The price of the tokens tracks the change in notional amount of the perpetual contract positions in the basket and changes in the multiples of leverage level.

Unlike crypto leveraged trading, you could get into a leveraged position without the need of having any collaterals, maintaining margin maintenance and worrying about the liquidation risk.

How to start trading with Binance Leverage Tokens?

First, you must sign up with Binance and create an account.

After you have created an account with Binance, Login to your account and follow these instructions.

  1. Go to Derivatives in the header menu and click on Leveraged Tokens on the drop down menu.
  2. Here, you can switch between listing your tokens and all available tokens. In this screen, all tokens are selected
  3. Name of the leverage token. From the name you can see the direction as well (DOWN or UP)
  4. NAV, Net asset value, refers to the price of a leveraged token
  5. Real leverage – Since the leverage is variable this represent the current leverage
  6. Last price, last traded price
  7. 24h change, change in % for the last 24h
  8. Trade, Subscribe and Redeem – Trade is on the spot market, while subscribe and redeem is against liquidity provided by Binance (this is usually at a higher price).
Before you can trade with Binance leverage tokens you need to accomplish and pass a quiz about this trading instrument. Read full Binance review 2020 for more general information about the trading site.

What is the leverage level of Binance Leveraged Tokens?

Its very important to understand that Binance leveraged tokens do not maintain a constant leverage, like most other leverage trading instruments.

Instead, Binance leveraged tokens maintain a variable leverage between 1.5x and 3x. 

Since Binance leveraged tokens are not forced to maintain a constant leverage, they can rebalance under extreme market conditions to maximize profits and minimize losses.

The rebalancing of positions of Binance Leveraged Tokens is governed by Binance’s proprietary algorithms with the aim to maximize correlation between Binance Leveraged Tokens and the underlying margin-leverage position without a profit-guarantee.

Binance Leverage Tokens Pros and Cons

Pros

  • No liquidation risk
  • No collateral
  • No maintaining margin maintenance
  • Variable leverage

Binance Leverage Tokens Fees

There are several different fees associated with Binance leverage tokens. You must be aware of those fees before you start trading since they will impact your trading result.

Trading fees: Trading fees are charged when buying or selling tokens in the spot market, and the fee schedule is identical to spot trading. The standard fee is 0.1% but you can reduce it if you increase your 30 day total trading volume, or adding BNB to you balance and pay your Binance trading fee with BNB.
 
Subscription fees: Subscription fees are charged when users choose to subscribe tokens, which is currently set at 0.1% per subscription.
 
Redemption fees: Redemption fees are charged when users choose to redeem tokens, which is currently set at 0.1% per redemption.
 
Management fees: A daily management fee of 0.01% will be charged at 00:00 UTC and reflected directly in the net asset value of the leveraged tokens. This approximately corresponds to a management fee of 3.65% per year and clearly shows you that this trading instrument is not made for long term investments.
 
Funding fees: Funding fees are paid (or paid to) the underlying fund based on the funding rate and reflected directly in the net asset value of the Leveraged tokens. Binance takes no fees for funding rate transfers; these are directly between traders. Simply, this fees are paying interest to the lenders for you to be able to leverage your position.

Binance Leveraged Tokens are not a long term investment

As with all investments, there are risks associated with Binance leverage tokens.

There is always a risk that the value of any investment, including Binance leverage tokens, can become zero (0) and cannot not be recovered due to inherent market risks, high fees, slippage, rebalance algorithm frontrunning and any other perceived unknown risks associated with Binance Leveraged Tokens.

Also, remember that leverage trading, including Binance leverage tokens, are NOT invented for long term investments because of the volatility decay.

Liquidity and pricing risks associated with Binance Leveraged Tokens

Because Binance provides liquidity to the leveraged tokens, there is a daily total redemption limi of each leveraged token at 100.000 token.

Users can only redeem 1.000 tokens per account, per day. However, it will generally be more expensive to redeem than rather than selling them on the spot market. Binance recommends to sell in the spot market as your first option, especially during normal trading times.

How to trade Binance Leveraged Tokens from the Binance app?

You can also trade Binance leveraged tokens form the Binance app.

Just click in the following order to get to this screen.

  1. Markets in the fotter menu
  2. ETF in the seond header menu (as you can see in the screenshot)
How to trade Binance leveraged tokens from the Binance app
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