- What is Margin Trading?
- Isolated Margin vs. Cross Margin
- BitMart Risk Ratio and Margin Call
- Daily Interest Rate for BitMart Margin Trading
- Repayment rules
- How to Long/Short on Margin Trading?
What is Margin Trading?
Margin trading is a trading method using funds provided by a third party. Compared to regular trading accounts, margin accounts allow traders to access more considerable sums of capital, allowing them to leverage their positions. This ability to expand trading results makes margin trading popular in low-volatility markets, mainly the international forex (Foreign Exchange) and rates market. Margin trading is also used in the stock, commodity, and cryptocurrency markets.
In traditional financial markets, an investment broker usually provides the borrowed funds. However, in cryptocurrency trading, funds are often provided by other traders or crypto exchanges, who earn interest based on market demand for margin funds.
For BitMart Margin Trading 1.0, we enable the Isolated Margin function first.
Isolated Margin vs. Cross Margin
BitMart now supports Isolated Margin trading and will also support Cross Margin in the future.
Margin in Isolated Margin mode is independent for each trading pair:
- Each trading pair has an independent Isolated Margin Account. Only specific cryptocurrencies can be transferred in, held, and borrowed in a specific Isolated Margin Account. For instance, in the BTC/USDT Isolated Margin Account, only BTC and USDT are accessible. You may open several isolated margin accounts for trading different pairs.
- The position is independent for each trading pair. If adding margin is required, even if you have enough assets in other Isolated Margin Accounts or the Cross Margin Account, the margin will not be added automatically. You may have to replenish manually.
- The risk ratio is calculated solely in each Isolated Margin Account based on the asset and debt in the isolated.
- Risk is isolated in each Isolated Margin Account. Once liquidation happens, it will not affect other isolated positions.
Margin in cross margin mode is shared among the user’s Margin Account:
- Each user can only open one cross margin account, and all trading pairs are available in this account.
- Assets in a cross margin account are shared by all positions.
- Risk ratio is calculated according to total asset value and debt in the Cross Margin Account.
- The system will check the margin level of the Cross Margin Account and notify users about supplying additional margin or closing positions. Once liquidation happens, all positions will be liquidated.
BitMart Risk Ratio and Margin Call
Margin trading allows you to add leverage to your positions to increase your potential earnings and profits. BitMart uses the Risk Ratio to evaluate the risk level of your Margin Account.
Risk Ratio of Isolated Margin
- The net assets in the user’s isolated margin account only can be used as the collateral in the corresponding account, and the assets in the user's other accounts (cross margin account or other isolated accounts) couldn't be used as collateral for it.
- The Risk Ratio of the isolated account = the total value of assets under the isolated account / (total value of liabilities + unpaid interest), among them:
- Total value of assets = the total value of the base assets + quote assets in the current isolated account
- Total liabilities = The total value of the assets that have been borrowed but not returned in the current isolated account
- Unrepaid interest = (the amount of each loaned asset * the time length of the loan * hourly interest rate) - repaid interest
- Risk Ratio and Operation: when the Risk Ratio > 2, users can trade, can borrow, and the excess assets in the account can also be transferred to other trading accounts. But the Risk Ratio still needs to equal or greater than 2 after transferring out to ensure normal asset transferring out functions.
Margin Call Risk Ratio
- When Margin Call Risk Ratio < Risk Ratio ≤ 2, users can trade and borrow, but cannot transfer assets out.
- The Margin Call Risk Ratio will be different according to different leverage levels. For example, the Margin Call Risk Ratio for a 3x leverage is 1.35, for 5x leverage, it will be 1.25 and for 10x, it will be 1.09.
- When Liquidation Ratio < Risk Ratio ≤ Margin Call Risk Ratio, a margin call will be triggered. The system will send notifications with an email, SMS, suggesting the user add a margin (that is, transfer more collateral funds) to avoid the risk of liquidation.
- When Risk Ratio ≤ Liquidation Ratio, the system will execute the liquidation process. The position held in the account will be forced to clear to repay the loan. At the same time, users will be notified via email, SMS.
- Liquidation Ratio will vary according to different leverage levels. For example, the Liquidation Ratio for 3x leverage is 1.18, for 5x leverage, it is 1.15, while for 10x leverage, it is 1.05.
What are Liquidation Clearance Fees?
When your Margin account is being forced liquidated, BitMart will charge a certain percentage in clearance fees. These fees can be viewed in the Margin account Clearance Fee History. However, you are recommended to manage your risks carefully to avoid forced liquidations. The user's liquidation price will not change as a result.
For Isolated Margin, Liquidation Clearance Fees = Isolated Margin liquidated assets*clearance fee rate. (Initiated clearance fee rate = 0.5%)
Daily Interest Rate for BitMart Margin Trading
BitMart’s margin account interest rate is calculated on an hourly basis.
NOTE: If funds are borrowed for less than 1 hour, the interest rate will still be calculated as for assets borrowed for 1 hour.
*If the daily interest rate is 0.02%, the hourly interest rate is calculated as 0.02%/24.
*The calculation formula: I (interest) = P (borrowed money) * R (daily interest 0.02%/24) * T (in hours)
If user A borrows 1,000 USDT at 13:20 PM, and repays at 14:15 PM, the interest rate is calculated as 1,000 *（0.02%/24）* 2 = 0.01666667 USDT.
*Margin account interest rates may be adjusted from time to time.
- You need to repay in the same coin as what you borrowed. For example, if you borrowed ETH, your account needs to have ETH when you make the repayment. Note that you cannot use other coins for repayment.
- You can repay the coins over separate repayments, but every time you conduct a repayment, you need to repay the interest first.
How to Long on Margin Trading?
In margin trading, taking a “long” position refers to buying an asset at a low price and then selling at a higher price. In this way, you can earn a profit from the price difference.
For example, if you think Ethereum’s price will go up in the coming future, you can borrow USDT in your ETH/USDT Isolated Margin Account and buy ETH at a relatively lower price now. If the price of ETH goes up, you can sell ETH, repay your USDT debt and your profit is amplified when compare to spot trading.
How to Short with Margin Trading?
In margin trading, a “short” position refers to selling an asset at a high price and then buying at a lower price. In this way, you can earn a profit from the price difference.
For example, if you think that Bitcoin’s price will go down in the future, you can borrow BTC in your BTC/USDT Isolated Margin Account and sell BTC at a relatively higher price now. If the price of BTC goes down, you can buy BTC back, repay your BTC debt and your profit is amplified when compared to spot trading.
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