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Throw A Sprat to Catch A Herring: A Glimpse of CoinEx Margin Trading

2021-07-14 07:12:56

Crypto investors who want to make a huge profit with a small amount of assets must be no strangers to the term: margin trading. What is margin trading?

Margin trading refers to the practice of magnifying your actual funds with potentially amplified gains. That is to throw a sprat to catch a herring! You can rake in huge profits with a small amount of funds through margin trading. 

margin trading leverage

CoinEx margin trading market supports up to 10X leverage. 30% of the daily distributable interest is reserved for CoinEx and this portion of the income will be spent on margin insurance funds and the proportion of bankrupt positions. CoinEx reserves the rights for future use of the funds.

CoinEx Margin Trading

CoinEx users can use the margin function to borrow coins by mortgaging assets. Trading pairs with different margin ratios correspond to different mortgage rates. In addition, new users who borrow from CoinEx for the first time can enjoy a 10-day interest-free period.

Here we take two examples to explain how to long-buy and sell short on margin trading.

Example 1: If I expect the price to rise and decide to seek profits through margin trading, what can I do? 

Here we take BTC/USDT for example. The BTC/USDT market supports up to 10X margin. Now we expect the BTC price to rise from 50,000 USDT to 60,000 USDT, and we have a principal of 50,000 USDT. According to the formula:

The largest loan available = ( Total assets - Unpaid borrowed funds - Unpaid interest) * ( Highest leverage - 1) - Unpaid borrowed funds

Since we have no funds borrowed from CoinEx or unpaid interest, we can borrow at most 450,000 USDT. 

Now we have 500,000 USDT (the principal of 50,000 USDT and the 450,000 USDT borrowed) and buy 10 BTC at a price of 50,000 USDT. Then we sell the 10 BTC when the price rises to 60,000 USDT, and make a profit of 100,000 USDT. If we invest all the 50,000 USDT in spot trading, we can earn only 10,000 USDT. The profit increases tenfold with 10X leverage.

Another example: If I expect the price will drop amid a sluggish market, what should I do to sell short on margin trading and make money even in a market slump?

We still take BTC/USDT for example. The market supports up to 10X margin. Now we expect the BTC price would drop from 50,000 USDT to 40,000 USDT. With the principal of 50,000 USDT, we can borrow at most 9 BTC from CoinEx, sell it at a price of 50,000 USDT and then buy it back at 40,000 USDT. As a result, we earn 90,000 USDT. But if we use our principal to make spot trading, we can only buy low and sell high. 

In the above example, we make profits through margin trading even in extreme market conditions.

However, high yields come with high risks. Huge losses would occur if you made a wrong judgment. To prevent forced liquidation, you should not hold heavy positions with high leverage. Besides, it is suggested that you prudently evaluate your risk tolerance to keep your normal life safe from the sway of investment failures.

It is worth noting that CoinEx employs a unique Margin Index Price marking system to help users avoid forced liquidation when the market swings drastically. Weighted prices are drawn from a selection of mainstream crypto exchanges with an anticipatory mechanism at work to ensure the Index Price swings within an acceptable range even when the price on one of the exchanges swings drastically.

So what can ordinary investors, especially beginners, do to lower forced liquidation risks? Here are some tips:

  1. Reasonably leverage in Margin Trading and adjust positions;
  2. Learn when to take profits or cut losses by liquidating positions;
  3. Add margin on your positions in time and make sure the ratio between Total Assets against Leverage is above 110%.
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