What’s Margin Trading

What is Margin Trading?

Margin trading refers to the practice of magnifying your actual funds with potentially amplified gains or losses. Please fully understand its risks before engaging in margin trading as the crypto market often swings drastically.

 

Related terms and definitions

1. Each margin account represents a margin pair. For example, you will have a BTC/USDT margin account for BTC/USDT margin pair, and you can transfer BTC and USDT from your spot account to your BTC/USDT margin account.

2. Transferred assets: The assets you transfer from your spot account to your margin account.

3. Borrowed assets: The assets that you borrow against the transferred assets as margin.

4. Available assets: Assets can be used to open positions, including your transferred and borrowed assets.

5. Frozen assets: Assets that are in the margin account but cannot be used to open positions or transfer.

6. In order: If a pending order is terminated (executed or canceled), the frozen amount will be reduced.

7. To-be-repaid: The amount of borrowed assets and interest to be repaid.

8. Risk rate: The margin account provides an indicator of the level of risk based on the amount of money pledged and borrowed in the margin account. The higher the risk ratio value, the lower the risk.

 

How can I transfer funds to my margin account?

Click the transfer button, set the transfer direction from [Spot] to [Margin], confirm the coin type and enter the amount, then click [Confirm].

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When you have funds on loan, you can transfer a certain amount of your margin assets to the Spot account under the premise that the Risk Rate is higher than the Transfer Risk Rate (150% for 3X leverage and 125% for 5X leverage).

If you have no funds on loan, all available assets in the margin account can be transferred to the Spot account.

 

How can I borrow funds?

You may visit the Margin Trading or Margin Assets page, and click [Borrow]. Maximum Loan Amount = (Total Assets - Unpaid Borrowed Funds - Unpaid Interest) * (Highest Leverage - 1) - Unpaid Borrowed Funds

 

How is the loan interest calculated?

1. Interest calculation: Borrowing interest for each loan is calculated separately based on the real-time interest rate at the time of borrowing. The interest will be charged for the first time once you borrowed funds successfully, and will accrue on an hourly basis. No extra interest will be charged on unpaid interest. Due to market volatility, the interest rates may slightly fluctuate.

2. Settlement: All loan orders are settled chronologically, and interest should be paid prior to your loan. When both the loan and interest are paid, the order will be marked as "Paid", and no more interest will be calculated for this order.

3. Loan cycle: 10 days with Auto-renewal enabled by default. Auto-payment will be triggered if you don't repay the loan within the specified period. 

4. Auto-renewal: The loan is automatically renewed based on the latest interest rate and cycle.

5. If any new assets with value are generated due to airdrop, potential fork, etc., please refer to the announcement for details on asset distribution and loan repayment.

 

Forced repayment

1. When the Risk Rate of the Margin account < Forced Liquidation Rate, forced repayment will be triggered.

2. The expiry of the loan

If auto-renewal is disabled, alerts will then be made 72 hrs, 24 hrs, 8hrs, and 1 hr before the expiry date. Forced repayment will be triggered if the loan order has expired.

3. Renewal failure

When Auto-renewal is enabled but renewal failed due to insufficient balance in the loan pool or other reasons, alerts will be made with the expiry date extended by 24 hrs. After 24 hrs, auto-renewal will be enabled again if the loan still has not been settled. Forced repayment will not be initiated if auto-renewal is successful. Otherwise, it will be triggered.

 

How can I use leverage to magnify gains if I think the price will go up?

Suppose 3X is the highest leverage for BTC/USDT market, and you have 5,000 USDT in your account. Then you can borrow up to 10,000 USDT.

If you predict BTC price will rise from 5,000 USDT to 6,000 USDT, you can buy 3 BTC at the price of 5,000 USDT with a total of 15,000 USDT and sell them at 6,000 USDT, making a profit of 3 BTC * (6,000 - 5,000) = 3000 USDT.

Margin Trading with 3X leverage triples the profit you can make with all the 5,000 USDT you actually have, which is supposed to be 1,000 USDT.

 

How can I use leverage to magnify gains if I think the price will go down?

Suppose you have 5,000 USDT in your account, and you can borrow up to 2 BTC with 3X leverage.

If you predict BTC will go down from 5,000 USDT to 4,000 USDT, you can sell 2 BTC borrowed from CoinEx at 5000 USDT and buy back 2 BTC at 4,000 USDT, making a profit of 2,000 USDT.

Without margin trading, you can only buy low and sell high and will not be able to short on BTC.

 

How is Index Price calculated?

1. CoinEx employs a unique Margin Index Price marking system to help users avoid forced liquidation when the market swings drastically.

2. Weighted prices are drawn from a selection of mainstream crypto exchanges with an anticipatory mechanism at work to ensure the Index Price swings within an acceptable range even when the price on one of the exchanges swings drastically.

 

What can I do to lower the forced liquidation risk?

1. Use leverage reasonably and adjust your position size.

2. Set Stop-Limit Order or Stop-Market Order properly to secure profits and minimize potential losses.

3. Add margin promptly to ensure that the ratio of total assets to assets to be repaid exceeds 110%.

 

How are Risk Rate, Transfer Risk Rate, Risk Alert Rate, Forced Liquidation Rate, and Forced Liquidation Price calculated?

1. Risk Rate: It is an index evaluating the risk of liquidation on your margin account.

Risk Rate = [ (Total Quote Coins - Unpaid Quote Coin Interest) / Index Price + (Total Base Coins - Unpaid Base Coin Interest] / (Borrowed Quote Coins / Index Price + Total Borrowed Base Coins) * 100%.

2. Transfer Risk Rate: The Transfer Risk Rate of 2X / 3X / 4X / 5X leverage are respectively 200% / 150% / 135% / 125%. If the Risk Rate is higher than the Transfer Risk Rate, your account is rated as safe and the extra assets can be transferred out of your margin account.

3. Alert Risk Rate: It is determined by the market depth and trading volume for the specific margin of the trading pair. If the Risk Rate is less than or equal to Alert Risk Rate, your account is rated as dangerous and the system will send notifications to you via in-site messages and Email.

4. Forced Liquidation Rate: It is determined by the market depth, trading volume, borrowed coin amount, etc. of the trading pair. If the Risk Rate is less than or equal to the Forced Liquidation Rate, forced liquidation will be triggered and you will be notified by in-site message and Email.

5. Liquidation Price Calculation: Liquidation Price = (Borrowed Quote Coins * Forced Liquidation Rate + Unpaid Quote Coin Interest - Total Quote Coins) / (Total Base Coins - Unpaid Base Coin Interest - Borrowed Base Coins * Forced Liquidation Rate)

 

What is Margin Insurance Fund?

CoinEx holds a margin insurance fund to cover any losses from bankrupt positions. The fund comes from the liquidation fee collected by CoinEx and 30% of its crypto loan income. CoinEx reserves the rights for future use of the funds.

When the insurance fund is not enough to cover the losses, CoinEx system will pay the remaining part in advance. In this case, users who are in debt will be restricted from withdrawal (access to trading will not be affected).

If you are in debt, you can transfer assets to margin account and the system will carry out the repayment automatically, or you can wait till the margin insurance fund is sufficient to pay off all debts in chronological order. After that, your access to withdrawal services will be resumed.

 

How to loan through margin trading?

With margin trading, CoinEx users can borrow assets by making a pledge. Depending on the leverage supported, the pledge rate of each trading pair varies. For trading pairs with 5X leverage, the pledge rate is up to 80%.

Take ETH/USDT for example, assuming the index price of ETH is 3,000 USDT. You can transfer 3,000 USDT to your Margin account first and borrow no more than 0.8 ETH. Then you can transfer the 0.8 ETH borrowed to your Spot account and even make a withdrawal from it.

 

Risk Disclaimer

Margin Trading not only allows you to magnify gains with fewer funds but can also saddle you with amplified losses when the market moves against you. Therefore, we strongly advise entry-level users not to use highly leveraged trading to avoid forced liquidation or even bankruptcy.

Disclaimer: The content provided on this website is for informational purposes only and does not constitute investment advice. The information provided is not intended to be a substitute for professional financial advice, consultation, or recommendations. Users are encouraged to consult with a qualified financial advisor before making any investment decisions. The website owners and authors do not assume any liability for any loss or damage that may result from reliance on the information provided. All investments carry risk, and past performance is not indicative of future results.