Cryptopedia
Margin Trading
Margin trading is trading that amplifies the trading results using the concept of leverage, allowing traders to access more significant profits with a small sum of funds, usually accompanied by higher risks. Margin trading is not only popular in the low-volatility markets such as the international Forex market, but also extensively applied in the stock and cryptocurrency markets.
Essentially, margin trading is a method to trade assets using funds borrowed from the markets, which requires investors to commit a percentage of their assets as margin to guarantee their ability to repay the funds when there is a price fluctuation in the market. When the price drops dramatically, investors will be asked to deposit their funds into the margin account to reach the minimum margin trading requirements. If they fail to do this, their holding assets may be liquidated to cover the loss.
Notices in the Margin Trading
There is a considerable risk in the margin trading of the cryptocurrency market, so the investors should pay attention to the following notes:
1. To Closely Watch the Change of Price
Owing to the around-the-clock trading of the cryptocurrency market, investors should closely watch the change of price and adjust the trading strategy accordingly through judging the time to close the position or deposit margin promptly.
2. To Rationally Use the Leverage
An inappropriate leverage strategy is likely to cause irretrievable loss if the market trends go against the anticipation. High-ratio leverage can enlarge the profits but, at the same time, carries a high risk of forced liquidation. Therefore, investors should employ proper risk management tactics and keep rational when trading.
3. To trade with a proper amount of funds that can be afforded (to be lost). Investors can use tools to decrease the risk, such as stop-limit orders.
Examples of the Margin Trading
The margin trading rule offered by different platforms only has few differences. To make it easier to understand, the following passage will take a look at the ution of margin trading on Gate.io.
Core Concepts of Margin Trading
1. Leverage rate: the ratio of total assets and margin, usually expressed as “x.” The “3x” means a 3:1 leverage. For example, if a margin account has 1USDT as margin and wants to trade at a 3:1 leverage, this account can borrow 2 USDT so that it has a total amount of assets of 3 USDT.
2. Forced liquidation: an action automatically uted by the , using the total capital of the margin account whose risk rate is below the requirement to cover the loss in the margin trading. Currently, the margin account trading at 3-5X leverage rates will be liquidated if its risk rate is below 110%. A margin account trading at 10X leverage rates will be liquidated if its risk rate is below 105%.
3. Risk rate: an indicator to assess the risk of forced liquidation to a margin account. It is a ratio of total assets and borrowing funds. Normally, a higher risk rate indicates a lower risk of forced liquidation.
How to Profit by Going Long in Margin Trading
For BTC/USDT trading, supposing that the current BTC price is $5,000, and Tom anticipates a rising of the price of BTC in the future, he commits 5,000 USDT as margin and borrows 10,000 USDT with a day rate of 0.02%. Now Tom is trading at a 3:1 leverage with the total assets of 15,000 USDT. He then buys 3 BTC, with all his USDT holdings.
Five days later, the BTC price increases to $10,000. Tom sells the 3 BTC that he holds to exchange 30,000 USDT, gaining a spread of 15,000 USDT in total. After repaying the 10,000 USDT that he borrowed and all the yielding interests, his net benefit = (the spread of BTC) * the BTC amount that he sold - total interests = 14,990 USDT.
How to Profit by Going Short in the Margin Trading
For the BTC/USDT trading, supposing that the current BTC price is $5,000, and Tom anticipates a decreasing price of BTC in the future, so he commits 5,000 USDT as margin and borrows 2BTC (worth 10,000 USDT) with a day rate of 0.02%. He then sells the 2 BTC to exchange 10,000 USDT. Now Tom is trading at a 3:1 leverage with the total assets of 15,000 USDT.
Five days later, the BTC price decreases to $2,500. Tom buys 2 BTC and then repays the 2 BTC alongside all the yielding interests. His net benefit = (the spread of BTC) * the BTC amount that he bought - total interests = 4,990 USDT.
An Example of Forced Liquidation
For the BTC/USDT trading, supposing that the current BTC price is $5,000, and Tom anticipates a decreasing price of BTC in the future, so he commits 5,000 USDT as margin and borrows 2BTC (worth 10,000 USDT) with a day rate of 0.02%. He then sells the 2 BTC to exchange 10,000 USDT. Now Tom trades at a 3:1 leverage with the total assets of 15,000 USDT.
Five days later, the BTC price doesn’t decrease as expected, and unexpectedly increases to $ 6,824. After a calculation, his account’s risk rate is below 110%, triggering a forced liquidation.
Risk rate= [15,000USDT (Total Assets)/6,824USDT (the Increased BTC Price)] * 2 (the BTC Amount That He Borrowed) *100%=109.9%
The Comics of Margin Trading
Going long: https://gateio.life/help/margin/16701
Going short: https://gateio.life/help/margin/16700
The Need-to-Know of Margin Trading on Gate.io
1. Currently, Gate.io provides 3-10X leverage rates varying from market to market, and the maximum amount that an account can borrow depends on the allowed leverage rate. For a market where 3X leverage is allowed, a margin account with 100 BTC margin can borrow up to 200 BTC.
2. The fees are calculated from the time you borrow in and calculated in a two-tiered scheme. Tier 1 is the initial 4 hours, which is the minimum duration when calculating fees; Less than 4 hours will be deemed as 4 hours. When a loan exceeds the initial 4 hrs, the remaining duration will be calculated on an hourly rate.
Tier1: Initial 4 hours: Day rate/6
Tier2: Remaining hours： day rate/24 X remaining loan hours
3. If the risk rate of a margin account is below the threshold, Gate.io will, according to the real-time order price, liquidate the account to cover the loss. At present, accounts trading at 3-5X leverage will be liquidated if the risk rate is below 110%, and those at 10 leverage will be liquidated if the risk rate is below 105%.
4. After forced liquidation, Gate.io won’t automatically repay the funds for the account before the due date. Users can deposit the margin and continue trading. The loan must be repaid before or on the due date (loan duration: 10 days). If overdue, your asset is automatically in custody of gate.io. Moreover, gate.io will close your position to pay for the outstanding loan when necessary.
For the complete trading notices and trading fees, please check at https://gateio.life/help/margin/16621
Margin Lending
Investors can also profit through lending funds to the margin account. By lending funds, the lender can gain interests and the borrower must repay the funds on the due date. Through margin lending on Gate.io, users can set their lending amount, interest rate, and lending days and gain interests with low risk.
*For more about margin lending on Gate.io, please check at https://gateio.life/help/margin/16622
*The above details of margin trading on Gate.io is as of January 2020.
Essentially, margin trading is a method to trade assets using funds borrowed from the markets, which requires investors to commit a percentage of their assets as margin to guarantee their ability to repay the funds when there is a price fluctuation in the market. When the price drops dramatically, investors will be asked to deposit their funds into the margin account to reach the minimum margin trading requirements. If they fail to do this, their holding assets may be liquidated to cover the loss.
Notices in the Margin Trading
There is a considerable risk in the margin trading of the cryptocurrency market, so the investors should pay attention to the following notes:
1. To Closely Watch the Change of Price
Owing to the around-the-clock trading of the cryptocurrency market, investors should closely watch the change of price and adjust the trading strategy accordingly through judging the time to close the position or deposit margin promptly.
2. To Rationally Use the Leverage
An inappropriate leverage strategy is likely to cause irretrievable loss if the market trends go against the anticipation. High-ratio leverage can enlarge the profits but, at the same time, carries a high risk of forced liquidation. Therefore, investors should employ proper risk management tactics and keep rational when trading.
3. To trade with a proper amount of funds that can be afforded (to be lost). Investors can use tools to decrease the risk, such as stop-limit orders.
Examples of the Margin Trading
The margin trading rule offered by different platforms only has few differences. To make it easier to understand, the following passage will take a look at the ution of margin trading on Gate.io.
Core Concepts of Margin Trading
1. Leverage rate: the ratio of total assets and margin, usually expressed as “x.” The “3x” means a 3:1 leverage. For example, if a margin account has 1USDT as margin and wants to trade at a 3:1 leverage, this account can borrow 2 USDT so that it has a total amount of assets of 3 USDT.
2. Forced liquidation: an action automatically uted by the , using the total capital of the margin account whose risk rate is below the requirement to cover the loss in the margin trading. Currently, the margin account trading at 3-5X leverage rates will be liquidated if its risk rate is below 110%. A margin account trading at 10X leverage rates will be liquidated if its risk rate is below 105%.
3. Risk rate: an indicator to assess the risk of forced liquidation to a margin account. It is a ratio of total assets and borrowing funds. Normally, a higher risk rate indicates a lower risk of forced liquidation.
How to Profit by Going Long in Margin Trading
For BTC/USDT trading, supposing that the current BTC price is $5,000, and Tom anticipates a rising of the price of BTC in the future, he commits 5,000 USDT as margin and borrows 10,000 USDT with a day rate of 0.02%. Now Tom is trading at a 3:1 leverage with the total assets of 15,000 USDT. He then buys 3 BTC, with all his USDT holdings.
Five days later, the BTC price increases to $10,000. Tom sells the 3 BTC that he holds to exchange 30,000 USDT, gaining a spread of 15,000 USDT in total. After repaying the 10,000 USDT that he borrowed and all the yielding interests, his net benefit = (the spread of BTC) * the BTC amount that he sold - total interests = 14,990 USDT.
How to Profit by Going Short in the Margin Trading
For the BTC/USDT trading, supposing that the current BTC price is $5,000, and Tom anticipates a decreasing price of BTC in the future, so he commits 5,000 USDT as margin and borrows 2BTC (worth 10,000 USDT) with a day rate of 0.02%. He then sells the 2 BTC to exchange 10,000 USDT. Now Tom is trading at a 3:1 leverage with the total assets of 15,000 USDT.
Five days later, the BTC price decreases to $2,500. Tom buys 2 BTC and then repays the 2 BTC alongside all the yielding interests. His net benefit = (the spread of BTC) * the BTC amount that he bought - total interests = 4,990 USDT.
An Example of Forced Liquidation
For the BTC/USDT trading, supposing that the current BTC price is $5,000, and Tom anticipates a decreasing price of BTC in the future, so he commits 5,000 USDT as margin and borrows 2BTC (worth 10,000 USDT) with a day rate of 0.02%. He then sells the 2 BTC to exchange 10,000 USDT. Now Tom trades at a 3:1 leverage with the total assets of 15,000 USDT.
Five days later, the BTC price doesn’t decrease as expected, and unexpectedly increases to $ 6,824. After a calculation, his account’s risk rate is below 110%, triggering a forced liquidation.
Risk rate= [15,000USDT (Total Assets)/6,824USDT (the Increased BTC Price)] * 2 (the BTC Amount That He Borrowed) *100%=109.9%
The Comics of Margin Trading
Going long: https://gateio.life/help/margin/16701
Going short: https://gateio.life/help/margin/16700
The Need-to-Know of Margin Trading on Gate.io
1. Currently, Gate.io provides 3-10X leverage rates varying from market to market, and the maximum amount that an account can borrow depends on the allowed leverage rate. For a market where 3X leverage is allowed, a margin account with 100 BTC margin can borrow up to 200 BTC.
2. The fees are calculated from the time you borrow in and calculated in a two-tiered scheme. Tier 1 is the initial 4 hours, which is the minimum duration when calculating fees; Less than 4 hours will be deemed as 4 hours. When a loan exceeds the initial 4 hrs, the remaining duration will be calculated on an hourly rate.
Tier1: Initial 4 hours: Day rate/6
Tier2: Remaining hours： day rate/24 X remaining loan hours
3. If the risk rate of a margin account is below the threshold, Gate.io will, according to the real-time order price, liquidate the account to cover the loss. At present, accounts trading at 3-5X leverage will be liquidated if the risk rate is below 110%, and those at 10 leverage will be liquidated if the risk rate is below 105%.
4. After forced liquidation, Gate.io won’t automatically repay the funds for the account before the due date. Users can deposit the margin and continue trading. The loan must be repaid before or on the due date (loan duration: 10 days). If overdue, your asset is automatically in custody of gate.io. Moreover, gate.io will close your position to pay for the outstanding loan when necessary.
For the complete trading notices and trading fees, please check at https://gateio.life/help/margin/16621
Margin Lending
Investors can also profit through lending funds to the margin account. By lending funds, the lender can gain interests and the borrower must repay the funds on the due date. Through margin lending on Gate.io, users can set their lending amount, interest rate, and lending days and gain interests with low risk.
*For more about margin lending on Gate.io, please check at https://gateio.life/help/margin/16622
*The above details of margin trading on Gate.io is as of January 2020.
