Margin trading is an investment method 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. Before starting, you may learn more about KuCoin Margin trading by the video below 👇:
1. Cross and Isolated Margin
2. Borrowing and Interest
3. Long and Short
4. Debt Ratio and Repayment
5. Advantages and Risks
1. Cross and Isolated Margin
The KuCoin margin trading platform supports cross margin and isolated margin modes.
1.1 Cross Margin
Cross margin means that all assets (regardless of type) in the margin account will be used as collateral to improve capital utilization and prevent liquidation. The advantage of cross margin is that it removes the need to replace tokens currently held in order to borrow other types. All tokens supported by cross margin can be transferred to and used by the cross margin account. The entire cross margin account is treated as a single position with a shared debt ratio. Cross margin currently supports up to 5x leverage.
1.2 Isolated Margin
Isolated margin means that each isolated margin trading pair has its own independent isolated margin account. Trades, risks, and debt ratio calculations are independent of one another. Only the two coins corresponding to the trading pair can be transferred, held, or borrowed in a specific isolated margin account. The advantage of isolated margin is the isolation of risk. Any risks of liquidation will have no influence on other isolated margin accounts. The maximum leverage also differs depending on the trading pair. Isolated margin currently supports up to 10x leverage.
1.3 Differences Between Cross and Isolated Margin
|Differences||Cross Margin||Isolated Margin|
|All cross margin shares the same account.||Each isolated margin trading pair has a separate account.|
|Margin||All assets in cross margin are used to guarantee each other and share the same margin.||
Only the two coins corresponding to the trading pair can be used for isolated margin.
|A single debt ratio is calculated based on all assets and liabilities under the cross margin account.||
The debt ratio of each isolated margin account is independent of the others. It is calculated based on the assets and liabilities in the specific isolated account. To adjust the debt ratio, you will have to manually modify the different isolated accounts.
|Risk||You will be automatically requested to increase the margin or close the position depending on the overall risk level of the cross margin account. Once liquidation is triggered, all assets under the account may be liquidated.||The risk for each isolated margin account is independent of one another. Even when one account is under high risk of liquidation, no other account will be affected.|
2. Borrowing and Interest
2.1.1 Amount of Borrowable Assets
In cross margin mode, the borrower has a maximum leverage of 5x, and the maximum borrowable assets is 4x the total assets in the cross margin account. If a user holds 10 USDT in a cross margin account, they may borrow up to 40 USDT, increasing their available funds to 50 USDT. You may borrow multiple coins. For example, you may hold BTC in your cross margin account and borrow other coins such as USDT, ETH, and LUNA. Users can choose to manually repay loans at any time before the due date.
In isolated margin mode, the maximum leverage differs depending on the trading pair, to a maximum of 10x. Using 10x leverage as an example, the maximum borrowable assets is 9x the total assets in the specific isolated margin account. If a user holds 10 USDT in a BTC/USDT isolated margin account, they may borrow up to 90 USDT, increasing their available funds to 100 USDT. This isolated margin account can only borrow BTC to go short or USDT to go long. It cannot be used to borrow other coins.
2.1.2 Borrowing Method
There are two different margin loan methods, namely Manual Borrow and Auto-Borrow.
Manual Borrow: The user borrows assets first, then makes a trade. The user must manually borrow assets from the C2C lending market before they can trade.
Auto-Borrow: The system automatically borrows assets when a user places an order. The user only needs to configure their leverage multiple. When the user places an order, the system will automatically borrow the amount required for the trade. Order placement and borrowing are executed at the same time. Users can toggle this function in accordance with their trading needs.
Interest is calculated by Principal, Daily Interest Rate, and Actual borrow time. You can check the Accrued Interest on the "Earn"--"Crypto Lending"--"Borrow" page as we show you below.
Interest Calculation Method
The interest will be charged for the first time once you borrowed funds successfully.
The accrued interest is updated every hour and will be settled when the borrowers repay.
If you choose to repay part of the loans, the system will repay the interest first until all of the loans have been repaid, and the rest of it will still be charged interest.
The platform will charge 5% of your accrued interest as fees and 10% as the insurance fund.
3. Long and Short
Long: Buy low and sell high, profiting when the market rises. Using BTC/USDT as an example, if the user believes the BTC is about to rise, they can go long by borrowing USDT to buy BTC. Once BTC rises, they sell their BTC and repay their USDT liabilities, with the remaining assets serving as their profit.
Short: Sell high and buy low, profiting when the market falls. Using BTC/USDT as an example, if the user believes the BTC is about to fall, they can go short by borrowing BTC to sell. Once BTC falls, they buy enough BTC to repay their BTC liabilities, with the remaining assets serving as their profit.
4. Debt Ratio and Repayment
4.1 Debt Ratio
If the user does not borrow any digital assets, the debt ratio is 0%. When the user borrows a number of digital assets, the system will calculate the debt ratio based on the user's principal, borrowed assets, and interest. The calculation is as follows:
Debt Ratio= Account liabilities/Account assets
Account liabilities=Borrowed assets + Accrued interest=sum(whole borrowed assets*mark price)+sum(Accrued interest for all borrowed assets*mark price)
Account assets=sum(whole holding assets*mark price)
The Debt Ratio will be refreshed every 5 seconds. When the user's debt ratio reaches 95%, the user's account will trigger a warning and KuCoin will send an SMS and email warning to the user based on the security settings. A forced liquidation will be triggered when the debt ratio reaches 97%. You may obtain the current debt ratio data on the margin account page and margin trading page no matter whether you are visiting our website or using our App.
|Initial Debt Ratio of Full Leverage (except interests)||Debt Ratio of Alert||Debt Ratio of Forced Liquidation||
Debt Ratio of Transfer-out
|Debt Ratio of Auto-renewing|
|1-5 times||80%||95%||97%||lower than 60%||
lower than 96%
|Isolated Margin||1-10 times||90%||95%||97%||lower than 60%||
lower than 96%
Note: You can only transfer part of your funds out from the margin account if the Debt Ratio is lower than 60%. The lower the debt ratio, the larger the transferrable amount. If you'd like to transfer all of your funds out, kindly check the liabilities in your margin assets page and repay all the loans first.
Low Risk: ≤60% debt ratio; Medium Risk: 60%-90% debt ratio; High Risk: >90% debt ratio.
Reducing the debt ratio to lower risk:
- Transfer more assets from other accounts to the margin account.
- Repay a portion of your debt in advance.
4.2.1 Viewing Liabilities
- The tokens you borrow are the tokens you have to repay. You cannot use another token to repay a loan. For example, USDT liabilities must be repaid in USDT, while BTC liabilities must be repaid in BTC. When repaying a loan, ensure that the margin account has a sufficient amount of the corresponding tokens.
- Liabilities payable = Borrowed assets + Accrued interest.
- You can view cross and isolated liabilities through Earn > Crypto Lending > Borrow page.
4.2.2 Repayment Method
- The borrower can choose to manually repay loans at any time before the due date. Interest is calculated on an hourly basis in accordance with the actual usage time.
- Auto-Renew Rule.
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 and interest) to repay the loan, which means to borrow the same amount of a new loan to repay the old loan.Purpose: To make it easier for Borrowers to repay the loan and maintain current margin positions, and for the Lenders to get the principal and interest on time when the loan expires.
Trigger condition: 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 borrow the same amount of the corresponding debt assets (which equals the remaining debt’s principal and interest) to continue the debt.
1) The system will borrow the same amount of the corresponding assets (which equals the remaining debt’s principal and interest).
2) Repay the mature loan.
The auto-renew function will likely fail 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. Meanwhile, the system will automatically cancel users' open orders in Margin.
- Auto Repay: Once auto-repay is enabled, the platform will automatically detect all assets in the margin account every 30 minutes. If there are coins available to repay the debt, repayment shall be made immediately and automatically. Users can toggle this function in accordance with their trading needs.
5. Advantages and Risks
Margin Trading vs Spot Trading
1. Borrow USDT or other coins to magnify trades.
|Go long/short to earn profits in rising or falling markets.|
Trade only with held assets.
Does not support going short.
Margin Trading vs Futures Trading
|Capital Utilization||Leverage||Risk Ratio|
|1. Borrow USDT or other coins.
2. Margin is shared across coins. All coins supported can be transferred to the cross margin account to serve as collateral.
3. Supports more coins.
Less risk exposure.
|Futures Trading||Each position is independent. Collateral is not shared.||1-100x||High risk.|
5.2.1 Force Liquidation and Dealt
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%. All the assets you hold in the margin account will be sold as the debt assets to repay all the debts.
- When the debt ratio in the margin account reaches the Debt Ratio of Forced Liquidation (97%), forced liquidation is triggered.
- When the liquidation is triggered:
2.1 Liquidation notification: according to your account settings, there will be SMS / Email + Account notification if you open the app or website version account.
2.2 Operation limitation
A. All margin trading pairs are not allowed to place orders (in any form);
B. All open orders in margin trading will be automatically canceled by the system;
C. No token can be transferred into the margin account during the period when the margin account is operating force liquidation.
- 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.
5.2.2 Risk Warning
Please pay attention to the risks of Margin trading and adjust the positions in time to avoid losses risks. All losses caused by the forced liquidation shall be borne by the user, including but not limited: due to the sharp fluctuations in the price of digital assets, the debt ratio in the Margin account quickly reached the liquidation line (97%) so that users failed to take corresponding measures in time after receiving the prompt information sent by the system.
Target /Suitable customers of Margin Trading
1. Institutions or experienced trading users
2. Spot trading users who pursue leverage profits
3. API quantitative trading users
4. Users with certain risk preference
Margin trading is widely praised by cryptocurrency traders because of its characteristics of using small funds to leverage large funds and amplify returns. Traders who understand its principle and operation may obtain returns far beyond the principal.
However, risk control can not be ignored. Many traders may continue to increase their investment in order to obtain more profits due to the current rising earnings, which may lead to investment failure. KuCoin sincerely recommends that traders set up stop profit and stop loss to actively control risks.