Introduction to Margin Trading

Margin trading, also known as leverage trading, allows traders to borrow funds from an exchange or broker to increase their purchasing power and potentially their profits on their investments.

Why choose margin trading to trade cryptocurrencies ?

• Potential for increased profits: By using leverage, traders can control a larger amount of cryptocurrency than they could purchase with their initial capital. This means that even small price fluctuations can result in significant profits. However, this works both ways, and losses can also be amplified.
• Access to more liquidity: Margin trading allows traders to have access to larger amounts of liquidity, enabling them to execute larger trades without having to commit as much capital.
• Diversification of strategies: Margin trading provides traders with the opportunity to diversify their strategies. For example, they can use hedging strategies to protect their existing positions against price fluctuations or to take advantage of price differences between different cryptocurrency exchanges.
• Flexibility and short-term trading opportunities: By using leverage, traders can capitalize on short-term price fluctuations, which can be advantageous in a volatile market like cryptocurrencies.

However, it’s important to note that margin trading also comes with significant risks. Losses can be amplified, and traders may even lose more than their initial investment. Additionally, borrowing fees can be high, which reduces potential profits. Therefore, margin trading is mainly suitable for experienced traders who understand the associated risks well and have a solid risk management strategy.

Differences Between Isolated Margin and Cross Margin

You have the option to engage in Isolated Margin and Cross Margin modes within the Margin trading platform. In Isolated Margin mode, you can allocate a specific margin amount to individual positions, thereby limiting risks. Conversely, Cross Margin mode utilizes the entirety of your Margin Account balance as collateral, offering increased flexibility and reduced margin requirements. Your choice between the two depends on your risk tolerance and trading strategy.

What is Isolated Margin mode?

In Isolated Margin mode, margin is unique to each trading pair. You can establish multiple Isolated Margin accounts for various trading pairs, each restricted to specified cryptocurrencies. For instance, only BTC and USDT can be transferred and utilized in the BTCUSDT Isolated Margin account. Each position within a trading pair is independent, requiring additional margin to be added directly to the respective Isolated Margin account. Furthermore, margin levels and associated risks are specific to each Isolated Margin account. Liquidation of one Isolated Margin position does not impact others.

What is Cross Margin mode?

In Cross Margin mode, margin is shared across all positions within the account. Only one Cross Margin account can be opened, granting access to all available trading pairs. Margin levels are determined by the total asset value and debt within the Cross Margin account. The system monitors margin levels and notifies users if additional margin is required or if positions need to be closed.

Example:

On Day N, suppose ETH and BCH are both valued at 2,000 USDT. User A and User B each deposit 4,000 USDT into their Margin accounts as margin and utilize 3X leverage on average to purchase ETH and BCH. User A opts for Cross Margin mode, while User B chooses Isolated Margin mode. Please note, this example excludes trading fees and interest charges.

Margin Level and Risk Control

Cross margin

Margin Level of Cross Margin :

Margin Level of Cross Margin Account = Total Asset Value of Cross Margin Account / (Total Liabilities + Outstanding Interest), where:

• Total Asset Value of Cross Margin Account = Current Total Market Value of All Digital Assets in Cross Margin Account
• Total Liabilities = Current Total Market Value of All Outstanding Margin Loans in Cross Margin Account
• Outstanding Interest = Amount of Each Margin Loan * Loan Time (in hours, at the time of the calculation) * Hourly Interest Rate – Deduction/Paid Interest

Your Margin Level is a key risk metric for your margin account. If it falls below a certain threshold, it will trigger margin calls and liquidations.

Maintaining a healthy Margin Level is crucial for managing risks associated with your margin account. Falling below a specific threshold can lead to margin calls and potential liquidations.

Collateral Margin Level :

Collateral Margin Level determines the maximum amount you can withdraw from your Cross Margin account. It is calculated by the Collateral Value, the total value of all assets in your Cross Margin account in USDT. Collateral Value also takes into account the relevant Collateral Ratio, the percentage at which the relevant asset is valued. 

Collateral Margin Level of Cross Margin Account = Collateral Value / (Total Liabilities + Outstanding Interest), where:

• Collateral Value = Current Total Market Value of All Digital Assets in Cross Margin Account * Collateral Ratio (calculated separately for each asset and then aggregated)
• Total Liabilities = Current Total Market Value of All Outstanding Margin Loans in Cross Margin Account
• Outstanding Interest = Amount of Each Margin Loan * Loan Time (in hours, at the time of the calculation) * Hourly Interest Rate – Interest Paid

Isolated Margin

The assets allocated within your Isolated Margin account serve exclusively as collateral for that specific account. They cannot be utilized as collateral for any other accounts, whether they are Cross Margin or other Isolated accounts.

Margin Level of Isolated Margin Account = Total Value of Assets in the Isolated Margin Account / (Total Liabilities + Unpaid Interest), where:

• Total Value of Assets = Current Total Market Value of All Digital Assets in the Isolated Margin Account
• Total Liabilities = Current Total Market Value of All Outstanding Margin Loans in the Isolated Margin Account
• Outstanding Interest = Amount of Each Margin Loan * Loan Time (in hours, at the time of the calculation) * Hourly Interest Rate – Deduction/Paid Interest