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Margin Trading | A Glossary

Photo by Shane on Unsplash

Margin Trading

In the crypto world, margin trading is essentially the practice of trading with assets borrowed from an exchange. You are trading with “leverage” as the margin (collateral) that you are putting down for the trade is usually only a fraction of the amount required.

For example, if you opened a margin position with 2X leverage and your base assets had increased by 10%. Your position would have yielded 20% because of the 2X leverage.

Since such use of financial leverage can potentially magnify gains but could also saddle the trader with devastating losses, leverage has the well-deserved reputation of being a double-edged sword.

Positions

Users can place buy(long) or sell(short) orders in margin trading. The “Positions” section on the trading page will show you the information of: buy/sell, quantity, profit/loss, margin liquidation price, etc.

Leverage

Instead of putting up the full market value of an asset such as Bitcoin, you operate on ‘margin’- a 10X leverage means that for every $1 you stake in equity, you can trade $10. Just as the profits could be multiplied, you will also bear a higher risk of losses.

Borrow Limit

The maximum quantity that you can borrow for the corresponding token. DigiFinex would determine the margin borrow limit for a trader with maximum leverage and take into consideration of the risk control.

✦ Borrow Limit = Total Margin ✕ Leverage.

If your total margin is equivalent to 1,000 USDT and the leverage is 3X, then you can use the equivalent of 1,000 ✕ 3 = 3,000 USDT to trade (Used margin will be frozen and cannot be transacted.)

Margin

Trader’s funds to maintain positions, i.e. collaterals such as USDT, BTC, ETH, etc.

Total Margin

Margin account trade balance.

Used Margin

The sum total of margin used for all open positions.

Suppose you have three positions open, with margins of $300, $500 and $900.

Your used margin will be $300 + $500 + $900 = $1,700.

The initial amount of used margin for a position depends on the leverage used.

A 3,000 USDT long position opened at 3X leverage will use 3,000 ÷ 3 = 1,000 USDT margin.

✦ On DigiFinex, USDT is used first by default, followed by BTC and ETH.

Available Margin

Available margin is the amount of your trade balance that is available for opening new positions, or transferring to other accounts.

✦ Available Margin = Total Margin – Used Margin

Margin Level

The ratio of your account margin equity to used margin. It helps you calculate how much money you have available for trading. The higher your margin level, the more cash you have on hand to trade.

✦ Margin Level = (Total Margin — Paper Loss) ÷ Used Margin

Profit or Loss

Profit or Loss is the total “paper” (or unrealized) profit or loss for all open positions. It does not include trading fees.

➤ For long positions, you have a paper profit (loss) if your opening cost is lower (higher) than current valuation.
➤ For short positions, you have a paper profit (loss) if your opening cost is higher (lower) than current valuation.

The unrealized profit or loss does not affect your currency balances until the positions are closed.

Paper Profit

A paper profit is an unrealized capital gain in a trade before the position is closed.

Paper Loss

A paper loss is an unrealized capital loss in a trade before the position is closed.

Paper Profit/Loss Level Calculation

● For A Long Position = (Current price — Average Purchase Price) ÷ Average Purchase Price

● For A Short Position = (Average Sell Price — Current Price) ÷ Average Sell Price

Closing Positions & Force-closing Positions

Closing Positions:

To close all or part of a position, you simply execute an opposing leveraged order in the volume amount you want to close.

➤ To close a long position, you execute a leveraged sell order.

➤ To close a short position, you execute a leveraged buy order.

For example, suppose you buy 1 BTC of BTC/USDT at 2X leverage.

➤ To close the entire position, you sell 1 BTC of BTC/USDT (at any leverage).

➤ To close half the position, you sell 0.5 BTC of BTC/USDT (at any leverage).

Don’t execute a closing order for more volume than your position, because this will create a new position on the opposite side.

Margin Liquidation Level

The margin level at which you are in danger of having some of your positions forcibly closed (or “liquidated”). It happens when your Margin Level is less than 30%, we may close all your positions or only enough to get your Margin Level above 30%.

Margin Liquidation Price

The price at which all your positions are automatically liquidated when your Margin Level is below 30%.

Margin Call Level

When your Margin Level falls below 60%, you will receive an early warning notice to add funds. (Web messages and emails)

Accrued Interest and Loan Repayment

Accrued Interest Policy

DigiFinex only collects interest once at 10:00 a.m (GMT +8) every day. If you do not hold any positions at this time, such as liquidating the position in advance, then we would not charge you interest.

Interest Rate

Daily interest rate is 0.1%. With a 50% discount (at 0.05%) during our promotional event period.

Borrow/Repay Policy

Margin trading on DigiFinex does not require you to manually borrow/repay any funds. The system will automatically borrow funds when you trade and also automatically repay when you close the positions.

For example: You buy 1 BTC of BTC/USDT at 4,000 USDT, and our system would let you borrow 4,000 USDT automatically. When you close the position by selling 1 BTC, the system would automatically repays the 4,000 USDT.

Photo by Karla Vidal on Unsplash

For more related articles, read DigiFinex Academy.

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