Margin trading refers to a trade mode in which a small amount of funds can be used for investments several times the original amount. Users leverage a small amount of crypto, borrow a certain amount of crypto, then go long (buy)/short (sell) to magnify the utilization of their funds.
Explanation of relevant terms:
- Margin Account: The accounts used for margin borrowing and margin trading. It is divided into cross margin and isolated margin accounts.
- Leverage (Margin multiples): Indicates the multiple relationship between the total assets in the margin account and the collateral. The maximum leverage determines the user's current maximum borrowing amount. In cross margin mode, the maximum leverage is 5x, that is, the user can use the collateral to borrow up to 4 times loan. In isolated margin mode, the maximum leverage is 10x, that is, the users can use the collateral to borrow up to 9 times loan.
- Estimated value: Sum of value, including available assets + frozen assets
- Transferred Assets: Assets transferred from other accounts to margin accounts
- Borrowed Assets: Assets in the margin account which is borrowed through the C2C funding market.
- Available Assets: Assets in the margin account that can be used to place an order, including transferred in and borrowed.
- Transferable assets: Assets in the margin account that can be transferred to other accounts.
- Frozen Assets: Assets in the margin account that cannot be used to place an order. Generally, it refers to the assets in the open order.
- Borrow: It refers to the behavior that users use the transferred assets in the margin account to borrow tokens.
- Lender: The provider of borrowed assets.
- Borrower: The user of borrowed assets.
- Interest: Interest is the usage fee of assets in a certain period of time. It refers to the remuneration that the currency holder (the creditor) gets from the borrower (the debtor) because of lending currency or monetary capital.
- Collateral: Refers to the original token amount in the margin account before borrowings.
- Principal and Interest: Principal + interest combine.
- Maximum borrowable amount: The maximum amount that a margin account can borrow
- Auto-Borrow: Refers to the automatic borrowing of assets when placing an order. Once the user configures their leverage, the platform automatically borrows the assets required to complete the trade with placing an order. Users can toggle this function in accordance with their trading needs.
- Auto-Renew: When the loan is about to expire, there are no or insufficient funds in the Borrower's Margin account to repay, the system will automatically trigger the Auto-Renew function to borrow the corresponding assets (the remaining debt's principal + interest) to repay the loan, which means to borrow the same amount of a new loan to repay the old loan. The auto-renew function will be failed in the following situations:
1) The system will detect whether the current debt ratio in the borrower's Margin account is lower than 96% before executing the auto-renew procedure. If the debt ratio reaches 96%, the system will fail to execute the Auto-Renew procedure;
2) The token has been delisted from the C2C Funding market;
3) The liquidity of the token is insufficient in the C2C Funding Market;
4) The debts in the borrower's Margin account access the token's Margin Risk Limit;
If the auto-renew's execution fails, the system will partially liquidate the borrower's margin position to repay the mature loan, which means that the system will trade part of the holding assets in the Margin account to the debt assets to repay all the debts and automatically cancel users' open orders in Margin.
- Auto Repay: The platform automatically detects assets held in the margin account every 30 minutes. If there are tokens available to repay the debt, repayment shall be made immediately and automatically. Users can toggle this function in accordance with their trading needs.
- Debt ratio = the total debt/total assets in the margin account.
Account liabilities = Borrowed assets + Accrued interest=sum (whole borrowed assets*mark price) + sum(Accrued interest for all borrowed assets*mark price).
Total assets = sum(whole holding assets*mark price).
1. Low Risk: ≤60% debt ratio; Medium Risk: 60%-90% debt ratio; High Risk: >90% debt ratio. The higher the debt ratio, the higher the proportion of borrowed assets, the greater the risk, and the more likely the liquidation. Reducing the debt ratio to lower risk: 1) Transfer more assets from other accounts to the Margin account. 2) Repay part of borrowed tokens in advance.
- Profit and Loss (PNL): The difference between the account equity at the current moment and the account equity when the loan was borrowed.
- Reference Liquidation Price: The reference liquidation price is calculated based on your balance and liabilities in your margin account as well as the corresponding spot index (BTC). This liquidation price is for reference only. At present, only isolated margin mode has a reference liquidation price. The liquidation price of each isolated margin account is calculated independently, with no effect on any of the others.
- Liquidation: A forced liquidation will be triggered when the mark price of your holding assets and debt assets changes resulting in the debt ratio reaching 97%. The system will trade the holding assets to the debt assets in order to repay all the debts. Meanwhile, the system will notify users by Email/SMS/Station Alert.
- Forced Liquidation: It means the system will close the position in your margin account automatically in the following situations. There are two situations for forced liquidation:
a. When the debt ratio reaches 97%, forced liquidation is triggered, the system will trade the holding assets in the Margin account to the debt assets in order to repay all the debts. Meanwhile, the system will notify users by Email/SMS/Station Alert.
After the forced liquidation occurs, the system will take over the positions to close and repay the debts. If there are residual balances, one small part of fees (about 1% of the total positions value) will be charged to protect against the risks of negative balances; the others will be returned to users’ accounts in USDT or liquidated tokens.b. The system will partially liquidate the borrower's margin position to repay the mature debt if failed to execute auto-renewing, which means that the system will trade part of the holding assets in the Margin account to the debt assets to repay all the debts.
Risk limit (including individual risk limit and Margin market's total risk limit) is a risk management mechanism to prevent possible big losses caused by forced liquidation under extremely volatile market conditions. To protect users' interests and reduce the trading risk minimally in the Margin market, KuCoin sets a Margin Risk Limit mechanism, which sets the borrowing and buying-in amount limits of each cryptocurrency and the Margin position limits of each user. Margin risk limit will make irregular adjustments considering KuCoin's risk control strategy and all determining aspects.
Margin Risk Limit includes three parts：
1) Margin Position Limit represents the maximum amount of holding a position can hold for each coin in the Margin account.
2) Borrowing Limit represents the maximum borrowable amount for each coin in the Margin market.
3) Buy-in Limit represents the maximum buy-in amount for each coin in the Margin market.
1) Click for more details about Individual's Margin Risk Limit in Cross Margin and Isolated Margin.
2) In KuCoin, one master account can create 5 sub-accounts. And the Margin Risk Limit (Margin Position Limit, Borrowing Limit, and Buy-in Limit) of each sub-account is 2% of its master account's limit.
3) Suppose a token’s total positions reach the cap of its total Margin position limits in the Margin market; users with Margin short the token positions can still buy the amount of debt token in the Margin market to repay, while others can not borrow or buy it anymore.
- Insurance fund: The insurance funds are the backup for the negative balance conditions in the margin market. If the negative balance procedure is triggered, the remaining debts will be covered by the insurance funds first to protect the interest of the lender. It won’t be fully covered if there are insufficient corresponding assets to repay all the debts.
The insurance fund is 10% of the interest when the borrower repays the liabilities.