Margin trading explained

     

What is Margin Trading?

Margin trading is essentially trading with borrowed funds instead of your own to maximize potential gains. When you place a margin order, all of the money you are using is borrowed from other users offering their funds as peer-to-peer loans. The funds in your margin account are then used as collateral for these loans & lớn pay baông xã any debts to lớn lenders through a settlement.

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If you are new to lớn margin trading, there are a few terms and concepts you may not be familiar with. This article will explain those terms, & how our system functions. The key terms can also be found individuallyhere.

Accounts

With the past addition of margin trading, there are now three separate accounts in which deposited funds can be stored: exchange, margin, & lending. Your exchange tài khoản holds the funds you use for regular trading on the Exchange tab (known as spot trading). Your margin tài khoản holds collateral used to lớn secure loans used in margin trading. Your lending account holds funds you can loan lớn other users và earn interest on.

When you deposit funds, they first go to lớn your exchange tài khoản. In order lớn margin trade, you will need khổng lồ first transfer some funds inlớn your margin tài khoản at the Transfer Balances page. You may fund your margin tài khoản with any currency for which margin trading is enabled.

Positions

When you borrow funds và make a trade, a position will open. If you buy, you are opening what is called a long position. If you sell, you are opening a short position. cảnh báo that as you continue lớn trade, your position may change; for example, if you open a short by selling 300 XMR, but then buy 600 XMR, your short will become a long. When you cthua kém your position, your loans are settled automatically. If you cchiến bại your position at a profit, the profit will be credited to lớn your margin account; if you cthua kém at a loss, the amounts needed khổng lồ settle your loans will be deducted from the collateral held in your margin account.

When you open a position, you will see something lượt thích this beneath the chart:

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Position: Long or short.Amount: The net amount of the market"s currency you have sầu bought or sold. If your position is short, this value will be negative sầu.Base Price: The approximate price at which you would need to lớn cthua thảm your position in order to break even.Unrealized P/L: Estimated profit or loss you would incur if your position were closed, which includes lending fees already paid. The Unrealized P/L also takes inkhổng lồ consideration order book depth và possible slippage when closing a position.Unrealized Lending Fees: The estimated value of outstanding fees on currently-open loans.Action: Cliông xã "Close" to lớn cthất bại your position with a market order.

Margin Account

On the right side of the margin trading page, beneath the markets box, you will see a summary of your margin tài khoản.

Total Margin Value: The total BTC value of all the currencies in your margin account. It is determined by the amount of BTC in your margin trương mục plus whichever is less for each of the other balances in your margin account: the amount of BTC they can be sold for on the current order book, or the amount they could be sold for at the 12-hour average trading price in their respective markets. It is important to remember that the value of your margin account can change quickly as market conditions change.

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Unrealized P/L: The approximate total profit or loss you would incur if all of your open positions were closed immediately with market orders, less unrealized lending fees.Unrealized Lending Fees: The estimated total value of the interest you currently owe on your active sầu loans.Net Value: The sum of your Total Margin Value, Unrealized P/L, và Unrealized Lending Fees. It represents the current total worth of your collateral.Total Borrowed Value: The total BTC value of your open loans. It is determined by the amount of BTC you are currently borrowing plus the amount of BTC that would be needed khổng lồ buy on the current order books the total of all other currencies your are currently borrowing. It is important to remember that this value can change quickly as market conditions change.Initial Margin: The percentage your Net Value is of the total value you can borrow. For example, if you want lớn borrow 3 BTC & your Initial Margin is 40%, you need lớn have sầu at least 40% of 3 BTC — or 1.2 BTC — worth of funds in your margin trương mục, less unrealized losses & lending fees.Current Margin: The percentage of your Total Borrowed Value that your Net Value currently is (in other words, Net Value over Total Borrowed Value). Current Margin is a critical value, because if it dips below your Maintenance Margin, your tài khoản will undergo a forced liquidation. For example, suppose you have sầu 1.5 BTC in your margin tài khoản, & your Maintenance Margin is 20%. Borrowing 3 BTC, you open a long position in the XMR market. Now, in order to lớn avoid a forced liquidation, the Net Value of your margin tài khoản must remain above sầu 20% of the 3 BTC you just borrowed, or 0.6 BTC. If the price of XMR starts declining, the amount of BTC you can get by selling the XMR you just purchased diminishes, and you start to incur a loss. This is reflected in your P/L & Net Value. If the amount of this loss, together with the lending fees you owe, reaches 0.9 BTC, the net value of your margin account will be 0.6 BTC (1.5 BTC minus 0.9 BTC in unrealized losses) & a forced liquidation will trigger.

What Is a Forced Liquidation?

A forced liquidation is when all or part of your positions are closed automatically lớn prsự kiện further loss & ensure you vì chưng not mặc định on your loans. Forced liquidations are executed using one or more market orders; as such, order book liquidity at the time of these orders will affect the extent of the losses you incur from the liquidation. Forced liquidations occur when your Current Margin dips below your Maintenance Margin. It is strongly advised that you kiểm tra the markets & your open positions regularly, mitigating your risk as necessary by reducing the size of your positions or transferring additional collateral inlớn your margin account. Markets can change very quickly, and no guarantee can be made that you will receive sầu a Margin Call warning in time for you to lớn prsự kiện a forced liquidation.

How Do I Margin Trade?

Once you have transferred funds khổng lồ your margin account, all you need lớn bởi vì to lớn margin trade is place buy & sell orders. Borrowing is all handled automatically. There are a few things you may need to know, though, so let"s go over placing an order.

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Two things are different compared khổng lồ the buy box on the Exchange page: Tradable balance and the Loan Rate field. Your tradable balance is the amount of funds currently available to you for trading. Its value depends on your margin trương mục balances, market conditions, and your open positions. The Loan Rate field allows you to specify the maximum daily interest rate you are willing lớn pay should your order open any new loans. Loans are always taken at the best available rate, so there is no harm in setting a value higher than the lowest rate offered. If no one is offering loans at or below the rate you specify, a trigger order will be placed instead of your margin order. When loans become available at your rate, the trigger order will grab it and place your margin order.

It is important to rethành viên that although you can specify your maximum loan rate when you place an order, you may end up with a higher rate if you keep an order or position open for more than two days. This is because your loans may expire after that amount of time và be transferred to new lenders at the best available rate.

In Margin Trading, trigger orders & stop limit orders may end up triggering at an amount less than the amount you specify. This is because your tradable balance varies continuously with market và order book conditions and the status và number of your open orders và positions.

Once you have sầu filled in all the fields, cliông xã Margin Buy (or Margin Sell). Rethành viên, even if your order does not fill immediately, you still incur interest fees on any loans used to lớn place your order.

*definitions for terms found in italics can be found in the Margin Key Terms article


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