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Contents
Understanding Binance Coin
Binance is one of the largest cryptocurrency exchanges in existence and Binance Coin or BNB is the platform's token.
Thus, Binance Coin was originally created with the purpose of covering the charges for operations within the exchange, i.e. the payment of commissions. And, since commissions can also be paid with other cryptocurrencies, the platform offers discounts starting at 25% to those who use Binance Coin.
Another feature of Binance Coin is that Binance, the exchange, on a quarterly basis does a “burn” of the BNB it receives as commission. The process of destroying Binance Coin tokens or taking them out of circulation is called “burning”.
This means that the number of Binance Coin tokens available in the market is reduced four times a year thus decreasing the supply. And we all know what happens when the supply of any asset decreases: its price increases.
The future of Binance Coin
The characteristics mentioned above allow us to be completely sure that Binance Coin the only thing it will do in the future is to increase its price. And the reason comes from the symbiotic relationship between its features which is explained as follows:
- By offering at least a 25% discount on commissions, all traders on Binance use Binance Coin. This makes for a demand for BNB that is growing steadily over time.
- The exchange destroys Binance Coin tokens that are used to pay trading commissions. The consequence is a sustained decrease in the supply of Binance Coin.
- Traders, having exhausted their Binance Coin paying commissions, return to demand the cryptocurrency to continue to take advantage of the platform's discounts.
This is how on the one hand the demand increases, while on the other hand the supply decreases, bringing as a direct consequence that its price increases steadily and in the long term.
Is it a good idea to invest?
?
Totally! The last feature of this cryptocurrency is that all its tokens were already mined at the time of its release.
This implies that Binance Coin cannot be mined and can only be purchased on the exchange. Furthermore, Binance has made it clear that it will not be adding new tokens in the future.
Therefore, we think any time is a good time to invest in Binance Coin.
Financial instruments that exist
Currency market
Forex or currency trading is the exchange between two currencies in order to gain money.
In case you want to trade EUR and USD, you speculate how many dollars it will take to buy a euro, with the expectation that the euro will raise its price compared to the dollar. Therefore, if you purchased each euro at 1.15 USD and you sell them back when their price is 1.20 USD, you'll be earning that margin.
You may be thinking by now that this form of trading requires investing considerable amounts, and you are not wrong, because fluctuation in prices is never that dramatic, and if you use a lot of leverage to counter that, you will take a considerable risk. Our advice for those who are new in the world of trading is not to start with Forex, but with a safer and simpler market.
The most known currency pairs are available on this broker but take into consideration that in this market sales are made through contract for differences, thus you will not be the owner of the underlying asset.
Equities
Stocks are the most popular securities. Some companies decide to split into fractions and have many shareholders. By investing money in them, you can own a portion of a company and obtain returns.
We can group stocks into two different kinds: those of companies that distribute their earnings among the shareholders and those that don't. But that doesn't mean that those of the second type have less to offer. If a company does not pay out dividends but has a lot of potential, it is also worth investing in it, since the capital gain you will get from the sale of the shares can be much greater than what you would earn through dividends.
If you invest in equities that pay out dividends, you will receive them into your account on this broker. Therefore, you can withdraw that money or you can choose to reinvest it. Nevertheless, compound interest can do magic, so our suggestion is that you reinvest in the company.
Remember that on the broker you can “dope” your trades with leverage, but in that case, you will not receive gains as the trade is a contract for difference. That is why for long-term investments, it is better not to use leverage: you can end up not gaining at all, because you will not receive dividends and also you will have to pay commissions while your position is open.
What are CFDs?
You probably have seen the term CFD repeatedly if you already accessed this broker. We will explain its meaning now, but you should know first that CFDs on this broker are only possible when you go short.
For the record, and if you are thinking about day trading cryptocurrency or other advanced trading practices, we will also explain concepts such as going short and leverage.
The good thing about this broker is that it lets you bet both “in the black” and “in red”. In a hypothetical case: you have the certitude that the Binance Coin will go down, so probably you consider that the best thing to do is wait until it does and then go in. Nevertheless, if it really goes down, it is possible to make some profits out of that.
You can do that by “going short”. Here's how it works:
- You ask for a loan of, let's say, 100 units of Binance Coin, which total value at that moment is $ 5,000 (these numbers are made up)
- Next, you earn $ 5,000 by offering them at the market price
- The Binance Coin devaluates from $ 50 to $ 30
- Again, you purchase the 100 units, but at the current price, $ 3,000
- You return the 100 units to whom made the loan in the first place
- The rest is yours, so, you will have earned $ 2000
It all seems more tricky than it really is. Just take into account that by trading in Binance Coin on this broker, with CFDs you can earn money if you anticipate downs in the price.
How to use leverage in trading
If you still don't know what “leverage” is, we'll describe it briefly: it is the possibility to use a higher amount than you actually have. For example, you can enter with $ 100, but if you use x2 leverage, you will be investing $ 200.
Leverage, Take Profit and Stop Loss
Suppose now that you know that the price of Binance Coin is going to raise its price, and you are thinking about “going long”.
You are completely sure that Binance Coin will go up, and you just have $ 1,000 at that moment, but the fact is, you have the chance of investing more.
You could go to your bank, ask for a loan, put an asset as collateral, wait for it to be accepted, wait for the money, send the money to your broker, confirm that it arrived, and then obtain Binance Coin… However, once you've managed doing all that, probably Binance Coin would be already much higher, and it wouldn't be a good idea to invest then.
Leverage is like a credit, and you will only have to click a few times to get it! the broker allows you to operate with much more money than what you have on the platform's wallet. Before trading, you will how much leverage to use as in the screenshot:
Within other markets, the ability to leverage is greater. This is because leverage is most common in short-term operations or day trading, and cryptocurrencies tend to be a medium or long-term investment. But let's see how leverage works.
You begin with $ 1,000 and decide to use leverage x2, then you would really invest $ 2,000, since your broker would put the other $ 1,000 (which is double the initial amount).
A week after that, Binance Coin goes up and now the value of your investment is 20% higher, which means, you have $ 2,400 in Binance Coin. But you don't want to be too reckless, so you decide, wisely, to sell back.
Obviously, the 1k $ from leverage will be deducted, and you'll have $ 1,400 left, of which $ 1000 was yours initially, so you'll have earned $ 400.
As you can see, with $ 1000 you get $ 400, in other words, 40% more. That's not bad at all, right?
But watch out: if all goes as you intended and the asset increases, you will make money. However, if the asset decreases, you will also lose more money really fast.
For instance: if instead of increasing by 20%, the price falls by 10%, you won't lose $ 10, but twice (the leverage) that figure, that would be $ 20. Because of that, the concepts of Take Profit and Stop Loss are crucial when using leverage.
Take Profit is used as a form of reducing risks when trading. When you enter, you can set a profit limit and ask that your position is automatically closed when the asset reaches a price.
If you bought Binance Coin at $ 100, you request the broker to close once it reaches $ 120. That way, you make sure you won't be blinded by greed and decide to wait a bit longer in case it keeps going up, which could be a mistake since the price could go down again.
On the other hand, when trading with leverage you also have to use Stop Loss, because a small decrease in the price of an asset can lead to a substantial loss. Consider that your broker will recommend a limit for Stop Loss, but you should set it lower than the platform suggests.