About Margin Trading
investors can use their crypto assets as collateral to borrow great sums of capital. Investors must repay the
loans within the time limit. Leveraged trading is similar to securities margin trading in the stock market.
Investors use leverages to amplify profits while also amplifying risks.
Margin trading vs. futures trading
How to conduct margin trading
Lee thinks that the
BTC market is looking very bullish in the coming month. In order to obtain higher profits, Lee plans to trade
on margin. Lee's account has 10,000 USDT and he wants to borrow 10,000 USDT in order to double the
return. First, he transfers
10,000USDT to his margin account as collateral. (Collateral: The
funds investors deposit as an agreement to obey the trading rules. Only after the collateral has been
transferred to the margin account can investors start borrowing funds.)
Then Lee chooses the
loan period and interest rate and he borrows 10,000 USDT, whose repayment is due in 30 days with the daily
interest rate being 0.02%. Lee bought 4 BTC at
the price of 5000USDT each. 25 days later, the price of BTC rises to 10,000USDT. Lee sold all the BTC and
repaid his margin loan in advance. Compared to trading with no leverage, he made an extra profit of
Profit from margin
trading: [10,000USDT (initial collateral)+10,000USDT(margin loan)]/5,000USDT(BTC buying price)*10,000USDT(BTC
selling price)-10,000USDT(initial collateral)-10,000USDT*(1+0.02%*25)(margin loan &
Profit from trading
without leverage: 10,000USDT (margin)/5,000USDT(BTC buying price)*10,000USDT(BTC selling
We can tell from the
calculation results that trading with leverage made Lee 9,950USDT more profit than without.
Say Lee thinks that
the BTC market is looking bearish in the coming month. He transfers 10,000USDT into his margin account when
the price for one BTC is 5,000USDT. He borrows 2 BTC and sells them to get 10,000 USDT. 25 days later, the
price for one BTC rises to 9,100USDT. Now Lee needs to give out 18,200USDT for 2 BTC to pay off his loan,
which means Lee's balance reduces from 20,000USDT to 1,800USDT. Lee loses 8,200USDT. At this point, the
risk rate of Lee's account is lower than 110%. Forced liquidation is triggered to stop further
*Risk rate = total
balance/loan volume *100% When Lee gets the
loan: Risk rate =
20,000USDT(total balance)/[5,000USDT(BTC buying price)*2(number of BTC borrowed)]*100%=200% 25 days
later: 1BTC=9100USDT Risk rate =
20,000USDT(total balance)/[9100USDT(BTC selling price) *2(number of BTC borrowed)]*100%=109.9%
The lower the risk
rate, the higher the risk. When the risk rate falls below 110%, forced liquidation will be
If the price of BTC
goes down as Lee predicts, when the price reaches 2,500USDT, Lee buys 2 BTC to repay the loan. Now Lee's
net balance is 15,000USDT(interest and handling fees not calculated). The price of BTC halves but Lee makes a
profit of 5,000USDT. The reward ratio is 50%, which means you can make huge profits from trading in a bearish
market too. Lee comes to the following conclusion: By introducing
leverage, spot trading can amplify returns when the market moves in the same direction as the investor
predicts. The investor can profit by trading with leverage in a bearish market too. But if the market moves in
the opposite direction as the investor predicts, the loss will also be amplified accordingly.
How can investors manage their finances?
The idle assets in
the account can be used for margin borrowing to generate extra revenue. When lending through a Gate.io
financial management product, lenders can decide the loan amount and interest rate.
Are the loaned assets safe?
The loaned assets
will be used by users of Gate.io to conduct margin trading. Gate.io guards the safety of financial management
funds through a comprehensive risk control mechanism.