Margin Trading is a tool that allows you to participate in the trading of digital assets on the market using funds that you can borrow and make a profit from both rising and falling asset prices.
In this area, the traded assets are digital assets such as Bitcoin, Ethereum, and others. An investor borrows these assets using his or her own funds as collateral (or margin). A commission is charged for the use of borrowed funds in the form of an interest rate.
This opens up the possibility of applying different trading strategies, managing risks, and earning more income from transactions.
Unlike futures, margin trading is more similar to spot trading, as traders buy real assets and execute transactions with them rather than with contracts.
How does margin trading work?
Margin trading provides an opportunity to use leverage, which determines the ratio between your own capital and the amount of loan you can get to make trading operations.
Leverage is a loan provided by an exchange for trading transactions. It determines how much you can increase the size of your trade compared to your own capital. In Margin trading, your funds act as collateral for an open position, which means that you use only your own funds to trade and cannot spend borrowed funds.
There are different levels of leverage available on WhiteBIT for margin trading, including: 1x, 2x, 3x, 5x and 10x. However, it is worth remembering that trading using leverage is associated with a high risk of losing funds, so it requires an understanding of the principles of its operation.
Let's take a closer look at the example of margin trading.
For example, suppose you have 1000 USDT of equity available for trading. If you use 5x leverage, it means that you can increase your available funds for trading by 5 times your equity, which is 5000 USDT (1000 USDT * 5 = 5000 USDT).
So, your total amount available for trading with 5x leverage is 5000 USDT, which is equivalent to approximately 5 BTC (at a price of 1 BTC = 1000 USDT). Your equity is 1000 USDT, and the remaining 4000 USDT is borrowed.
Imagine that the price of BTC has increased by 10%, now 1 BTC is worth 1100 USDT. If you decide to sell your entire position at this price, you will receive 5500 USDT (5000 USDT + 10% = 5500 USDT). Out of this amount, 1000 USDT is your own money, and the remaining 4500 USDT will go back to the exchange, and your profit will be about 500 USDT, which is roughly equal to 0.454 BTC. As a result, you will have 1500 USDT on your balance (1000 USDT of your own + 500 USDT of profit).
Otherwise, if the price of BTC decreased by 5%, 1 BTC will cost 950 USDT. The total value of your 5 BTC will be 4750 USDT (950 USDT * 5 BTC = 4750 USDT). If you decide to sell your entire position at this price, you will suffer a loss of 250 USDT (5000 USDT - 5% = 4750 USDT). Of this amount, 750 USDT is your own funds and the remaining 4000 USDT is borrowed, so your loss would be 250 USDT.
Therefore, the results of your margin trade will depend on the movements of the asset price, and you can make both profit and loss depending on which way the market moves.
Commission for the use of borrowed funds
Leverage fees will only apply if at least part of your margin Limit order has been executed. This means that if your leveraged order is not executed, you will not have to pay a leverage fee. The absence of fees for waiting for an order to be executed makes margin trading on our platform more profitable for users, as fees will be applied only in case of successful trades.
What are positions and how do they differ?
A position in margin trading is a transaction that allows a trader to make money on the price change of an asset. There are two types of positions:
- Long positions — these positions are opened with the assumption that the price of an asset will increase and the trader will be able to sell it at a higher price than he bought it.
This is a strategy when a trader expects the market to grow.
- Short positions — these positions are opened when a trader expects the price of an asset to fall. In this case, the trader sells an asset that he does not own (borrows) on the market at the current price, and then buys it back at a lower price and returns the borrowed assets. The difference between the sale and purchase is the trader's profit.
The main difference between long and short positions is the direction in which the trader expects the asset price to change: up (for long) or down (for short).
Here are some examples of how the positions work
For Long (buy) — let's say you have 10,000 USDT on your balance and the price for 1 BTC is 10,000 USDT. If you use 5x leverage, you can open a Long position by buying 5 BTC. After that, if the price of BTC rises to 11,000 USDT for 1 BTC, you can close your position and make a profit. In this case, your profit will be 5000 USDT (5 BTC * 1000 USDT = 5000 USDT).
For Short (sell) — let's say you have 1 BTC and the price for 1 BTC is 10,000 USDT. If you use 5x leverage, you can open a Short position by selling 5 BTC. Then, if the price of BTC drops to 9,000 USDT for 1 BTC, you can close your position and make a profit. In this case, your profit will also be 5000 USDT (5 BTC * 1000 USDT = 5000 USDT).
Both of these examples demonstrate how you can make money on the price change of an asset using 5x leverage. However, you should always remember that using leverage allows you to increase your profit, but also increases the risk of losses.
What are Margin Call, liquidation and Stop Out?
Margin call is a warning sent to a trader in the form of a system email when the level of his own funds in a position drops to a certain minimum level.
This event occurs when the losses in a position become significant and additional collateral is required to maintain the open position. Margin call provides a trader with several options:
- You can deposit additional funds to the margin account to increase the level of collateral and prevent the position from being liquidated.
- You can decide to close a losing position to prevent further losses and free up collateral for other trades.
A margin call usually occurs when the level of collateral in a position decreases to a certain percentage level of the trader's own funds in that position.
For example, if the level of equity falls to 25% (excluding leverage), the trader will receive a Margin Call notification and will have to decide on further actions.
The liquidation process starts after the trader has received a Margin Call and has not taken any measures to increase his/her own funds in the position or close it.
Liquidation is the process by which the exchange automatically closes a trader's unprofitable position to prevent further losses and ensure that financial obligations to other traders and the exchange are met.
On WhiteBIT, the MMR level for positions on the margin market is the same for leverage from 1x to 10x and is 2.5%.
This means that if the level of equity in a position falls below the specified liquidation threshold, the exchange will automatically close the position.
Such measures are taken to ensure financial stability and prevent additional losses for all market participants.
Consider this in more detail with an example.
You have your own funds in the amount of 1000 USDT and you decide to use 5x leverage, which means that you can increase the available funds for trading by 5 times your own capital. In total, with the use of 5x leverage, you get 5000 USDT available for trading (1000 USDT * 5 = 5000 USDT).
MF (Margin Fraction) is the ratio of your own funds to the amount of borrowed funds. To express this ratio as a percentage, you need to calculate (1000 / 5000) * 100, which equals 20%. This means that 1000 USDT is 20% of the total amount of 5000 USDT.
MMR (Maintenance Margin Requirement) for 5x is 2.5%.
This means that as soon as the ratio between your own and borrowed funds falls from 20% to 2.5%, your position will be liquidated:
- 20% of 5000 USDT = (20/100) * 5000 USDT = 1000 USDT.
- 2.5% of 5000 USDT = (2.5/100) * 5000 USDT = 125 USDT.
Thus, when your equity drops to 1000 USDT (which is equal to 20% of the total amount), you will receive a Margin Call. If your own funds fall even lower to 125 USDT (equal to 2.5%), your position will be liquidated.
Please note: this example is simplified and does not take into account market volatility, commissions and other factors that may affect the result, in addition, leverage parameters and margin levels may differ from one exchange to another.
Stop Out is a protective measure designed to minimize losses and prevent a situation when losses exceed the user's total balance. In margin trading, traders use borrowed funds to increase their trading positions, which increases both potential profits and potential losses.
When market conditions deteriorate, the margin level decreases and losses begin to approach the level of a trader's own funds, the exchange will automatically close one or more positions so that the margin level does not fall below a critical value. This is an important element of risk management in margin trading that helps traders avoid situations where losses exceed their investments.
Stop Out and liquidation are two terms that are often used in margin trading and they are related to risk management, but there are key differences between them. Stop Out is the margin level at which the exchange starts automatically closing some or all of a trader's open positions to prevent further losses. It is usually triggered before liquidation and is a warning mechanism that allows you to avoid complete account liquidation.
Liquidation occurs when the value of assets on a trader's balance falls to a level where the trader can no longer maintain open positions using borrowed funds. At the moment of liquidation, all positions are closed, and the trader loses all or most of his initial margin.
Liquidation is the last measure when Stop Out fails to prevent further losses and the funds on the trader's account can no longer support open positions. It is important to understand that both of these mechanisms exist to protect a trader from significant losses that may exceed his investments. However, Stop Out is an earlier warning and allows you to keep part of the funds on your account, while liquidation usually means the loss of all margin used in positions.
What is Margin Fraction (MF) and Maintenance Margin Requirement (MMR)?
Maintenance Margin Requirement (MMR) is an important indicator that defines the minimum percentage of your own funds that should be in your account to maintain an open position.
MMR defines the minimum ratio of your own funds required to avoid liquidation of your position.
The Margin Fraction (MF) value is the ratio of your own funds available on your Margin Balance to the amount of borrowed funds you use for trading.
The MF value can vary from ∞ (infinity) to MMR, which depends on the leverage you choose. For example, for leverage from 1x to 10x, the MMR is the same and amounts to only 2.5%. If the MF value falls below or coincides with the MMR, it means that your position will be automatically liquidated.
Our exchange provides a Risk Score that visualizes the risk level associated with your trading positions. It reflects the current state of your collateral balance and can be between 0% (full solvency) and 100% (full insolvency).
The orange sector on the scale indicates the Margin Call zone, and the red sector indicates the liquidation zone.
The higher the leverage you choose and the less money you have on your collateral balance, the higher the risk level.
What other indicators should be considered?
|Collateral equivalent/Total Collateral
|This is the amount of funds on your Collateral balance, displayed in USDT equivalent.
|Unutilized funds (Free Collateral)
|These are the funds on your Collateral balance that are not yet involved in open positions.
|Balance for Trading
|This is the amount of funds available on your Collateral balance for opening and maintaining positions multiplied by the leverage you choose (1x, 2x, 3x, 5x, and 10x).
|These are funds used to collateralize your trading positions.
|Minimum order size (Min. Order Amount)
|This is the smallest amount of funds (in the base asset) that must be used when placing an order.
|Minimum order (Min. Order)
|This is the minimum amount of funds (in a traded asset) that must be used when placing an order.
|Taker Fee/Maker Fee
Taker Fee is a commission that a user pays when his order is to be executed immediately. For example, if you place a Market order that is executed at the current market price, you will be obliged to pay the Taker Fee.
Maker Fee is a commission that a user pays when his order is not executed instantly and is waiting for execution in the order book.
|Minimum order increment (Min. Size Increment)/ Min. Amount
The minimum order step indicates the smallest permissible unit of position quantity or size that can be specified when placing an order on the exchange.
This parameter limits the precision and discreteness of the values that can be specified for the volume or position size. For example, if the value is 0.001 BTC, it means that you can specify the number of BTC in the order only to three decimal places. Any value smaller than the minimum step will not be accepted by the exchange.
It is also important to note that the Size Increment parameter is only valid for certain trading pairs where decimal orders are allowed. For example, for the XRP-PERP pair.
This means that not all assets and trading pairs will be subject to the same rules regarding the minimum order size and order accuracy.
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What are the advantages of margin trading on WhiteBIT?
- Margin trading on WhiteBIT provides traders with flexible leverage from 1x to 10x. This allows you to increase potential profits, but it also increases risk, so it is important to keep a close eye on your positions.
- At WhiteBIT, one of the key advantages of margin trading is low commissions, which usually do not exceed 0.1%. This reduces trading costs and allows traders to keep most of their profits. In addition, holders of our native WBT coin can get additional commission discounts, which makes trading even more profitable.
- Another advantage of margin trading on WhiteBIT is the ability to use different assets on the "Collateral" balance to ensure the security of your positions. However, you should take into account the margin weight of each asset to properly manage the risk.
- The fee for using borrowed funds is charged only if your order is at least partially executed. This helps to reduce costs and makes margin trading more efficient.
- It is also important to note that when you open a position using leverage, you can create an OCO (One Cancels the Other) order, which allows you to automatically cancel one order if another is executed. This helps to manage risk and protect your positions.
- To further secure your positions, you can set Stop-Loss and Take-Profit orders on WhiteBIT. They can be used either separately or in combination after you have opened a position. If one of the orders is executed, the other will be canceled automatically. You can learn more about how to use SL and TP orders in this article.
What is Cross margin trading?
Cross Margin account is a single account where all your margin assets are combined. The margin level is one, and liquidation affects all assets on the account at the same time. This is a high risk warning, as if the margin level falls below the minimum, you risk losing all the funds in the account. However, this type of account allows you to compensate for losses from one pair with profits from another.
Please note: a cross margin account is flexible but also risky, as an isolated account is more predictable and safer but requires more careful management.
What is Isolated trading?
Isolated Margin account allows each margin position to have its own separate account. Liquidation of a position for one pair does not affect other positions on other accounts. This helps to manage risk more precisely as you can add additional funds to the balance of each isolated account to avoid liquidation.
Please note: only the cross margin account is available on WhiteBIT.
In case of any questions you can:
- Leave a request on our website;
- Write to the support e-mail: firstname.lastname@example.org;
- Write to the chat using the button in the lower right corner of the screen.
Note that if WhiteBIT determines in its sole discretion that one or more of your Orders, or a combination of two or more of your Orders pose a serious threat to the proper functioning of any of the Digital assets markets and Futures trading markets (including: (i) posting, submitting, publishing, displaying, or transmitting any Order or Transaction intended to take advantage of any error by another Person or manipulate a Digital assets market and the the price of any Digital asset; (ii) submit Orders with the intent to any wash trading, spoofing, fictitious trading or price manipulation; (iii) enter Orders in any Digital assets market with the intent of creating the false impression of market depth or market interest), WhiteBIT reserves the right to cancel or void any of your Orders and/or Transactions that We, in Our sole discretion, deem to be fraudulent, manipulative or disruptive to other Users or the Platform. WhiteBIT reserves the right, in its discretion, to restitute funds received as a result of such malicious and harmful behavior of the User.