To begin trading Binance leveraged tokens, there is an essential prerequisite: completing the Binance Leveraged Token Quiz. This quiz aims to assess your knowledge of trading using leveraged tokens.
The successful completion of the Binance Leveraged Tokens Quiz is important for leverage token trading. One wrong answer can pause your leverage trading journey.
In this article, we will explain what Binance Leveraged Tokens are, how they work, and find out the Binance Leveraged Token Quiz answers for August 2023.
Key Takeaways:
- Binance Leveraged Tokens let you trade with leverage up to 4x on the Binance spot market.
- You must pass the Binance Leveraged token quiz (11 questions) with a 100% success rate to unlock leveraged tokens trading feature.
- Trading leveraged tokens is very risky and not for everyone. The worst-case scenario is that the value of your leveraged tokens can go to zero, and you can lose everything.
Table of Contents
Binance Leveraged Token Quiz Answers: Overview
To trade leveraged tokens on Binance, you have to take the Binance Leveraged Token Quiz first. This quiz has 11 questions that check your knowledge and understanding of Binance leveraged tokens.
You must know how leveraged tokens work, such as their leverage factor, rebalance process, price changes, and possible losses. To pass the Binance Leveraged Token Quiz, you must get all the questions right, and then you can enable the leveraged tokens trading function on Binance.
Binance Leveraged Token Quiz Question 1
Question 1: What is Binance Leveraged Tokens?
Choices:
- Binance Leveraged Tokens is a financial derivative which is similar in nature to traditional leveraged ETFs. Their net asset value may be greatly worn out by short-term market fluctuations. Long term holding of Binance Leveraged Tokens is risky and users should minimise the losses by selling the leveraged tokens from time to time.
- Binance Leveraged Tokens is a cryptocurrency which you can withdraw the tokens out anytime.
- Binance Leveraged Tokens is a futures contract which you adjust leverage level from time to time.
Answer 1: Binance Leveraged Tokens is a financial derivative which is similar in nature to traditional leveraged ETFs. Their net asset value may be greatly worn out by short-term market fluctuations. Long term holding of Binance Leveraged Tokens is risky and users should minimise the losses by selling the leveraged tokens from time to time.
Binance Leveraged Token Quiz Question 2
Question 2: What is the leverage multiplier for Binance Leveraged Tokens?
Choices:
- The system maintains a target leverage range between 1.25x and 4x
- It is always 4x
- It is always 1.25x
Answer 2: The system maintains a target leverage range between 1.25x and 4x.
Binance Leveraged Token Quiz Question 3
Question 3: When does Binance Leveraged Tokens rebalance?
Choices:
- Every 8 hours
- Every day
- When the market is volatile or the actual leverage multiplier is out of the target leverage range.
Answer 3: When the market is volatile or the actual leverage multiplier is out of the target leverage range.
Binance Leveraged Token Quiz Question 4
Question 4: What is the worst case scenario of holding Binance Leveraged Tokens on a long term basis?
Choices:
- Binance Leveraged Tokens is a good store of value and the value will increase over time.
- Users can receive interest income for holding Binance Leveraged Tokens on a long term basis.
- The value of Binance Leveraged Tokens can become zero (0) and cannot be recovered due to inherent market risks, high fees, slippage, rebalance algorithm frontrunning and any other perceived unknown risks associated with Binance Leveraged Tokens.
Answer 4: The value of Binance Leveraged Tokens can become zero (0) and cannot be recovered due to inherent market risks, high fees, slippage, rebalance algorithm frontrunning and any other perceived unknown risks associated with Binance Leveraged Tokens.
Binance Leveraged Token Quiz Question 5
Question 5: Which one of these fees is NOT associated with Binance Leveraged Tokens?
Choices:
- Asset custody fees
- Trading fees
- Subscription and redemption fees
Answer 5: Asset custody fees
Binance Leveraged Token Quiz Question 6
Question 6: Which one of these is NOT a cost associated with holding Binance Leveraged Tokens?
Choices:
- Daily management fees and reflected directly in the net asset value of the Binance Leveraged Tokens.
- Funding fees for basket positions and reflected directly in the net asset value of the Binance Leveraged Tokens.
- Profit sharing fees
Answer 6: Profit sharing fees
Binance Leveraged Token Quiz Question 7
Question 7: By trading Binance Leveraged Tokens, you do not need to maintain margin maintenance and worry about the liquidation risk. However, Binance Leveraged Tokens is not completely risk-free. Which one of these is NOT a risk associated with holding Binance Leveraged Tokens long-term?
Choices:
- Continuing to be charged management fees and funding fees.
- Erosion of net asset value (NAV) due to rebalancing and volatility decay when there is no obvious trend in the market.
- Receiving interest payment
Answer 7: Receiving interest payment
Binance Leveraged Token Quiz Question 8
Question 8: Why are subscription and redemption of Binance Leveraged Tokens not recommended during normal trading time?
Choices:
- Subscription and redemption fees are higher than trading fees and there is a limit on how many leveraged tokens users can subscribe or redeem daily.
- Binance Leveraged Tokens is a cryptocurrency which you can withdraw the tokens out anytime.
Answer 8: Subscription and redemption fees are higher than trading fees and there is a limit on how many leveraged tokens users can subscribe or redeem daily.
Binance Leveraged Token Quiz Question 9
Question 9: Which one of these actions is NOT required to complete before trading Binance Leveraged Tokens?
Choices:
- Opening a Margin Account.
- Completing the Binance Leveraged Token questionnaire and agreeing to the terms and conditions in the Binance Leveraged Token Risk Disclosure.
Answer 9: Opening a Margin Account
Binance Leveraged Token Quiz Question 10
Question 10: What would a responsible trader likely do, if they incur consecutive losses?
Choices:
- Continue trading until they earn back their capital.
- Cut losses timely and control risk exposure.
Answer 10: Cut losses timely and control risk exposure.
Binance Leveraged Token Quiz Question 11
Question 11: As a leveraged tokens trader, you should fully understand the risks associated with leveraged tokens trading and solely responsible and liable for any losses associated with trading activities on your account.
Choices:
- Yes, I agree
- No, I disagree
Answer 11: Yes, I agree
What is a leveraged token in Binance?
Binance Leveraged Tokens represent a basket of perpetual futures contracts at fixed leverage. For instance, BTCUP mirrors up to 4x long in BTC/USDT futures, while BTCDOWN reflects 4x short.
Similarly, other leveraged tokens track different cryptocurrencies and leverage ratios, such as ETHUP, ETHDOWN, DOTUP, DOTDOWN, etc.
These tokens simplify leveraged crypto trading. Unlike margin trading, users easily trade leveraged tokens on the spot market, sidestepping complexities like margin rules, liquidation, and funding rates. You can buy and sell these tokens like regular tokens.
How do Leveraged Tokens Work?
Binance Leveraged Tokens use a smart algorithm that automatically adjusts the leverage ratio. The algorithm also performs daily rebalancing to maintain the target leverage ratio and prevent liquidation.
The algorithm considers factors like price change, volatility, funding rates, and user demand to decide when and how much rebalancing is needed. Rebalancing can occur anytime during the day, as per market dynamics. This varies across leveraged tokens.
The rebalancing cost is deducted from the net asset value (NAV) of the leveraged tokens. The NAV is the total value of the underlying perpetual futures contracts divided by the total number of tokens in circulation. The NAV is updated every second and reflects the current market price of the leveraged tokens.
What are the disadvantages of Leveraged Tokens?
- Price decay: Due to the rebalancing mechanism and the compounding effect of leverage, leveraged tokens may experience price decay over time, especially in volatile or sideways markets. This means that your leveraged tokens may lose value even if the underlying cryptocurrency price remains unchanged or moves slightly in favor of the leverage tokens’ direction.
- Tracking error: Leveraged tokens may not precisely copy their intended leverage ratio due to factors like rebalancing frequency, associated costs, funding rates, user demand, and market liquidity. This means that they may underperform or overperform their target leverage ratio.
- Market risk: Like any other cryptocurrency products, leverage tokens are subject to market risk, which means that they may lose value due to changes in the market price, volatility, or sentiment of the underlying cryptocurrency.
Conclusion
To trade Leveraged Tokens on Binance, users need to pass the Binance Leveraged Tokens Quiz, which consists of 11 basic questions. You must give the correct answer to each quiz question to trade leveraged tokens.
After successfully finishing the Binance Leveraged Token Quiz, you can buy/sell leverage tokens easily, like regular tokens. Get leveraged exposure without margin risks.
But remember, there are risks like price decay, tracking differences, and market fluctuations. Do research before trading Binance leveraged tokens, and stick to what you can afford to lose.
Related Article: Best crypto exchanges for margin trading
FAQs
Can Binance leveraged tokens get liquidated?
No, Binance leverage tokens cannot get liquidated. They have a built-in mechanism that adjusts their exposure and rebalances their positions automatically. This helps them avoid liquidation and optimize returns. The worst case is that the value of leveraged tokens can go to zero.
How long should you hold leveraged tokens?
Binance leverage tokens are best for short-term trading strategies. These tokens are influenced by factors like funding rates, volatility, and market movements. These factors can cause significant losses over time due to compounding effects and decay.
So, you should monitor your leverage tokens and close your positions when you reach your target profits or losses.
Can I withdraw Binance Leveraged Tokens?
No, you cannot withdraw Binance leveraged tokens. They can only be traded on the Binance spot market and stored in the Binance exchange wallet.
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