Binance Futures offers a platform for users to trade cryptocurrencies with leverage, but there are several lesser-known aspects and potential risks associated with it:
1. Market Manipulation: Some traders allege that price manipulation, especially liquidation hunts, occur. Large market orders can temporarily drive prices to hit stop losses, liquidating over-leveraged positions, benefiting market makers or large traders.
2. Leverage Risk: Binance offers up to 125x leverage on certain assets. While high leverage can amplify profits, it also significantly increases the risk of liquidation. Many traders, especially beginners, may underestimate the speed at which losses can accumulate with high leverage.
3. Insurance Fund: Binance’s insurance fund is designed to cover losses when a trader's position is liquidated but the account doesn’t have enough funds to cover the loss. However, it’s unclear how much of this fund is used, which raises concerns about transparency and the exact role of the fund in volatile markets.
4. Funding Rates and Fees: In perpetual futures trading, traders pay or receive funding fees depending on whether their position is long or short. While these fees are small, they can accumulate quickly, particularly during times of market volatility. Traders sometimes overlook these charges, which can erode profits over time.
5. Liquidation Mechanisms: Liquidation prices are not fixed and can change based on various factors such as market conditions and account balance. Moreover, partial liquidations occur before full liquidations to reduce risk, which can surprise some traders.
6. Regulatory Uncertainty: Binance has faced regulatory scrutiny in several countries regarding its futures and derivatives offerings. This could lead to restrictions or changes in the platform’s availability or rules in certain regions.
7. Complexity for Beginners: While Binance Futures can offer high rewards, the platform is complex, and many new users might not fully understand how futures trading works, leading to significant losses. Understanding concepts like margin requirements, leverage, and risk management is crucial.
Understanding these factors is important for anyone considering trading on Binance Futures, especially when using high leverage in volatile markets
like cryptocurrencies.
