Margin trading on BitMax.io is a financial derivative instrument of cash trading. BitMax.io users can leverage their tradable asset for potential higher return on investment. However, they must also understand and bear the risk of potential losses from margin trading.
Margin trading on Bitmax.io requires collateral in order to support up to 3x leverage initially. Users do not need to manually request for borrow or return. When users transfer their BTC, ETH, USDT, XRP, etc assets to their “Margin Account”, all account balances can be used as collateral.
1.What’s Margin Trading?
Trading on margin is the process by which users borrow funds to trade more digital assets than what user would normally be able to afford. Margin trading allows users to increase buying power to potentially achieve higher return. However, with higher market volatility of digital asset, users may also incur much greater losses with use of leverage. Therefore, users should fully understand the risk of trading on margin before opening a margin account and use caution when trading.
2.Margin Account
BitMax.io margin trading requires separate “Margin Account.” Users can transfer their assets from Cash Account to Margin Account as collateral for margin loan under My Asset Page.
3.Margin Loan
Upon transfer, users do not need to request for margin loan. System will automatically apply the maximum leverage based on their “Margin Asset” balance.
When the margin trading position exceeds Margin Asset, the excess is the margin loan. The margin trading position must stay within the Maximum Trading Power (limit).
For example:
Note:Platform will systematically assigned Leverage based upon the user’s net asset.
When Maximum Leverage for the account gets updated due to the change of Net Asset of Margin Account, it will only affect user’s max borrowable amount. Maximum Leverage for the account is not factored in the calculation for forced liquidation.
User’s order will be rejected when total loan exceeds the Max Borrowable Limit for the token under the user account. The error code for the rejection is displayed under Open Order/Order History section of trading page as ‘NotEnoughBorrowable’. As a result, users will not be able to borrow more until they repay and reduce the outstanding loan under Max Borrowable Limit.
4.Interests of Margin Loan
Interests of margin loan are calculated and updated on user’s account page every 8 hours at 0:00 UTC/8:00 UTC/16:00 UTC/24:00 UTC. However, less than 8 hours will be counted as 8-hour period. Interests should be paid in the same form of token that the users borrow and/ or the platform points purchased thru Point Program.
Please refer to Loan Interest Rate Schedule for details.
5.Loan repayment
BitMax.io allows users to repay the loans by either transacting the assets from the Margin Account or transferring more assets from the Cash Account. Maximum Trading Power will updated with the repayment.
Example:
When the user transfers 10 BTC to the margin account and current leverage is 3 times, the Maximum Trading Power is 30 BTC.
Assuming at the price of 1 BTC = 10,000 USDT, buying additional 20 BTC with selling 200,000 USDT results in the loan (Borrowed Asset) of 200,000 USDT. The user can repay the loan plus interests by either making transfer from Cash account or selling BTC. The steps are as below:
Make transfer
The user can transfer 200,000 USDT (plus respective interest incurred) from the Cash account to repay the loan. Maximum Trading Power will increase accordingly.
Make transaction
The user can sell 20 BTC (plus respective interest owed) through margin trading and the sales proceeds will automatically be deducted as loan repayment against Borrowed Asset. Maximum Trading Power will increase accordingly.
Note: Interest portion will be repaid prior the principal portion of the loan.
6.Computation of Margin Requirement and Liquidation
In the Margin Trading Initial Margin (“IM”) will be first calculated separately for user’s Borrowed Asset, user’s Asset and overall user account. Then the highest value of all will be used for the Effective Initial Margin (EIM) for the account. IM is converted to USDT value based off the market price available.
EIM for the account= Maximum Value of (IM for all Borrowed Asset, IM for Total Asset, IM for the account)
IM for individual Borrowed Asset = (Borrowed Asset + Interest Owed)/ (Max Leverage for the Asset-1)
IM for all Borrowed Asset = Summation of (IM for individual Borrowed Asset)
IM for individual Asset = Asset / (Max Leverage for the Asset -1)
IM for Total Asset = Summation of all the (IM for individual Asset) * Loan Ratio
Loan Ratio = (Total Borrowed Asset + Total Interest Owed) / Total Asset
IM for the account = (Total Borrowed Asset + Total Interest Owed) / (Maximum Leverage for the account -1)
Note: Maximum Leverage for the account is systematically assigned based on the Net Asset of Margin Account
Example:
User’s position
Therefore, Effective Initial Margin for the account is calculated as follows.
Note:
- For the purpose of illustration, Interest Owed is set as 0 in the example above.
- When current Net Asset of Margin Account is lower than EIM, users cannot borrow more funds.
When current Net Asset of Margin Account exceeds EIM, user can place new orders. However, the system will calculate the impact of new order on the Net Asset of Margin Account based upon the order price. If the newly placed order will cause the new Net Asset of Margin Account to drop below the new EIM, the new order will be rejected.
Update of Effective Minimum Margin (EMM) for the account
Minimum Margin (MM) will be first calculated respectively for user’s Borrowed Asset and Asset. The greater value of those two will be used for the Effective Minimum Margin for the account. MM is converted to USDT value based off the market price available.
EMM for the account = Maximum value of (MM for all Borrowed Asset, MM for Total Asset)
MM for individual Borrowed Asset = (Borrowed Asset + Interest Owed)/ (Max Leverage for the Asset*2 -1)
MM for all Borrowed Asset = Summation of (MM for individual Borrowed Asset)
MM for individual Asset = Asset / (Max Leverage for the Asset *2 -1)
MM for Total Asset = Summation of (MM for individual Asset) * Loan Ratio
Loan Ratio = (Total Borrowed Asset + Total Interest Owed) / Total Asset
Example:
User’s position
Therefore, Effective Minimum Margin for the account is calculated as follows.
Rules for Open Orders
Open order of margin trading will lead to the increase of Borrowed Asset even before the order execution. However, it will not affect the Net Asset.
Note:
- For the purpose of illustration, Interest Owed is set as 0 in the example above.
- Rules for Liquidation Process remain the same. When cushion rate reaches 100%, the user’s margin account will be subject to forced liquidation anytime.
- Cushion rate = Net Asset of Margin Account / Effective Minimum Margin for the account
Calculation of Total Amount of Borrowed Asset and Asset
Under the Loan Summary section on the margin trading page, Balance and Loan Amount are displayed by asset.
Total Amount of Asset = Sum of Balance of all assets converted to the equivalent value of USDT based off the market price
Total Amount of Borrowed Asset = Sum of Loan Amount for all assets converted to the equivalent value of USDT based off the market price
Current Margin Ratio = Total Asset / Net Asset (which is Total Asset – Borrowed Asset – Interest Owed)
Cushion = Net Asset/Min Margin Req.
Margin Call: When cushion reaches 120%, the user will receive a margin call via email.
Liquidation: When cushion reaches 100%, the user’s margin account may be subject to liquidation.
7.LiquidationProcess
Reference Price
In order to mitigate price deviation due to market volatility, BitMax.io uses composite reference price for the calculation of margin requirement and forced liquidation. The reference price is computed by taking an average last trade price from the following five exchanges (upon availability at the time of computation)- BitMax.io, Binance, Huobi, OKEx and Poloniex , and removing the highest and lowest price.
BitMax.io reserves the right of updating pricing sources without notice.
Process Overview
Forced liquidation will be triggered and executed using platform internal algo based off the best market price available at that time. To potentially reduce market impact, the liquidation order size will be calibrated factoring in the market depth and liquidity at that time. In addition, forced liquidation will only be executed via limit orders instead of market orders.
In the event where the net asset of Margin Account cannot cover the loan payment post liquidation, the following limitation will be imposed to the Cash Account:
- The trading function will be limited to sell-only;
- The withdrawal function will be disabled.
Users can transfer asset from the Cash Account to the Margin Account to repay the loan. When net asset of the user’s Margin Account is greater or equal to Initial Margin Requirement, trading and withdrawal functions will be automatically resumed for the Margin Account.
8.Fund transfer
When the user's Net Asset is greater than 1.5 times of Initial Margin, user can transfer asset from Margin Account to the Cash Account as long as Net Asset remains higher or equal to 1.5 times of Initial Margin.
Risk Reminder:
While margin trading can boost buying power for a higher profit potential with the use of financial leverage, it can also amplify the trading loss if the price moves against the user. Therefore, user should limit the usage of high margin trading in order to mitigate risk of liquidation and even greater financial loss.
Typical Use Case
1.How to tradeon margin when the price goes up?
Here is an example of BTC/USDT with 3x leverage.
If you expect that BTC price would go up from 10,000 USDT to 20,000 USDT, you can borrow maximum of 20,000 USDT from BitMax.io with 10,000 USDT capital.
At the price of 1 BTC = 10,000 USDT, you can buy 3 BTC and then sell them when the price doubles. In this case, your profit would be
3 *20,000 – 10,000 (Capital Margin) – 20,000 (Loan) = 30,000 USDT
Without the margin, you would only have realized PL gain of 10,000 USDT. In comparison, margin trading with 3x leverage amplifies the profit by 3 times.
2.How to trade on marginwhen the price drops?
Here is an example of BTC/USDT with 3x leverage.
If you expect that BTC price would drop from 20,000 USDT to 10,000 USDT, you can borrow maximum of 2 BTC from BitMax.io with 1BTC capital.
At the price of 1 BTC = 20,000 USDT, you can sell 3 BTC and then buy them back when the price drops by 50%. In this case, your profit would be
3*20,000 – 3*10,000= 30,000 USDT
Without the ability to trade on margin, you would not able to short the token in anticipation of falling price.
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