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BINANCE

Calculating Your Loan-to-Value Ratio (LTV) To Avoid Liquidation

Main Takeaway:

  • Loan-to-value (LTV) ratio is utilized by Binance Loans to evaluate every particular person’s lending danger stage.

  • If your LTV is greater than the Liquidation LTV, your collateral shall be forcefully liquidated to repay your mortgage.

  • Learn easy methods to calculate your LTV and keep away from compelled liquidation right here.

Learn easy methods to calculate Loan-to-value (LTV) ratios to keep away from liquidation, liquidation charges and disruptions in your crypto buying and selling and investing plans.

Experienced merchants borrow crypto for spot, margin and futures buying and selling to extend their dc

place measurement and amplify their buying and selling efficiency. Binance Loans helps the borrowing of a number of cryptocurrencies, together with BTC, ETH, BUSD and USDT that can assist you achieve this. 

Looking to spice up your buying and selling efficiency? Binance Loans is a lending resolution that enables customers to entry crypto loans at aggressive charges to extend place measurement. However, this strategy to buying and selling additionally carries extra dangers as your place could also be liquidated shortly if the market strikes in opposition to you. Therefore, it is very important all the time do your due diligence earlier than getting into riskier trades involving loaned crypto. Understand the idea of LTV to raised handle your crypto loans and positions.

What is Loan-To-Value (LTV)? 

Loan-to-value (LTV) is the ratio of your mortgage to the worth of your collateral. Traditionally, LTV is an evaluation of lending danger examined by monetary establishments and different lenders earlier than they approve of a mortgage. Typically, mortgage assessments with excessive LTV ratios are thought-about higher-risk loans. Therefore, if the mortgage is accepted, the mortgage will usually even have a better rate of interest. On the opposite, the decrease the LTV ratio, the larger the prospect that the mortgage shall be accepted and the decrease the rate of interest is prone to be.

Loan-To-Value (LTV) Ratio Used In Binance

Binance Loans makes use of LTV to measure every particular person’s lending danger. LTV is the ratio of the worth of your mortgage to the worth of your collateral. You can verify the price used to calculate the values utilizing the Index Price page. Note that completely different belongings used as collateral have completely different preliminary LTVs, which implies that if you use completely different coins as collateral of the identical worth, the mortgage you are taking is of a special worth as properly. If your LTV is greater than the Liquidation LTV, you may be knowledgeable so as to add extra collateral or repay your mortgage. If your LTV is greater than the liquidation LTV, the system will liquidate your collateral to repay your mortgage. 

Calculating Loan-To-Value (LTV) Ratio

Below is the method used to calculate the Loan-to-Value ratio.

LTV = Loan Amount / Collateral Amount x 100%

Loan Amount = Principal + Interest

Visit this User Manual for an in-depth information to calculate or regulate your LTV ratio.

Forced Liquidation and How to Avoid it

When does compelled liquidation happen?

If you’ve got put up collateral to mortgage crypto, when your LTV ratio reaches the Margin Call stage, you’ll obtain a margin name notification prompting you so as to add collateral to scale back the danger of liquidation. Forced liquidation occurs when a place is forcefully closed on account of a partial or complete lack of one’s preliminary margin. Binance does this to guard merchants from incurring any further losses by decreasing additional market publicity.

When the LTV ratio reaches the Liquidation Call stage, it would set off a compelled liquidation in your collateralized belongings, and you’ll obtain a liquidation name notification. Upon liquidation, a liquidation charge of two% of your mortgage quantity shall be imposed.

Disadvantages of compelled liquidation

Being forcefully liquidated might put you in a disadvantageous place as your positions are robotically closed. Since you now not have open positions within the market, chances are you’ll miss out on profit-making alternatives ought to the market situation enhance. In addition, as a result of you aren’t voluntarily liquidating your belongings, you should not have a selection in when to promote your belongings, which implies that your belongings might not be bought for an optimum price. Finally, compelled liquidation additionally incurs a set charge of two% of your mortgage quantity.

Adjusting LTV to keep away from liquidation

Due to the risky nature of the crypto market, liquidation is usually a frequent incidence for individuals who don’t monitor their belongings. In addition to being disruptive of your plans, liquidation additionally incurs pointless liquidation prices and will trigger you to lose your present place within the market. To mitigate the possibilities of being liquidated, particularly throughout excessive price actions, customers are advisable to watch their LTV repeatedly and regulate well timed. 

Step 1: Sign into your Binance account.

Step 2: Go to the [Ongoing Orders] web page below Binance Loans and click on [Adjust LTV].

Step 3: Adjust your LTV by shifting the LTV bar, or manually add or take away the collateral quantity.

Step 4: Once you might be completed adjusting, click on [Add Collateral] or [Remove Collateral] to substantiate your LTV adjustment.

For extra particulars, please consult with the user manual.

Conclusion

Traders can loan BTC, ETH and other major cryptocurrencies to participate in futures or margin trading to amplify their buying and selling efficiency. However, these methods contain greater dangers and require merchants to all the time do their due diligence to scale back the danger of enormous losses. While it’s inconceivable to foretell the market, you’ll be able to take precautions to keep away from liquidation when borrowing crypto by monitoring and adjusting your LTV repeatedly. 

Read the next assist objects for extra data:

Disclaimer: Cryptocurrency funding is topic to excessive market danger. Binance will not be accountable for any of your buying and selling losses. The opinions and statements made above shouldn’t be thought-about monetary recommendation.

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