What is margin trading?

The difference with conventional spot trading is that in margin trading, traders can borrow several times the original funds from the platform by pledging a small amount of margin, and obtain a higher amount of trading funds with a lower amount of position. In essence, it magnifies the trading results and increases the income obtained by traders in the trading.

Profitable ways of Margin trading (long and short)

One of the advantages of margin trading is the ability to adopt different trading strategies in different market trends, choosing to go long (bullish) or short (bearish), thereby reaping profits in both bull and bear markets.

For example, if an investor believes that a cryptocurrency asset is bullish in the short or long term, then the investor may choose to go long. Take the BTC/USDT pair for example. If investors are bullish on BTC, they can transfer a certain amount of margin to a margin account and borrow USDT manually or automatically to get up to three times the initial margin available to buy BTC. When BTC rises by a certain amount, investors can choose to sell BTC in the market to get USDT and return the previously borrowed USDT to gain revenue.

If an investor believes that a cryptocurrency asset is bearish in the short or long term, then the investor can choose to go short. Take the BTC/USDT pair as an example. If the investor is bearish on BTC, the investor can manually or automatically borrow BTC and sell BTC in the market to get USDT without holding the cryptocurrency. when BTC falls by a certain amount, the investor can choose to buy BTC in the market and return the previously borrowed BTC to gain revenue.

How Margin Trading Works

Similar to spot trading, investors set orders at the price they want to buy or sell at. The main difference between spot trading and margin trading is that margin trading allows you to borrow coins from the platform and multiply your profits. Investors who do not have sufficient funds may choose to transfer margin to a margin account as a collateral asset.

"Leverage" refers to the ratio of borrowable funds to margin, and AAX currently offers 3x leverage. For example, if a trader's margin in a margin account is worth 1,000 USDT, the trader can borrow up to 2,000 USDT and receive a total of 3,000 USDT in available trading funds to trade.

In addition to the initial margin, margin trading has another important concept, namely the margin rate. In Cross Margin mode, all coins in the margin account are converted to USDT to calculate the margin value in the margin account, and all borrowed coins in the margin account are converted to USDT to calculate the value of the borrowed coins in the account.

When the margin rate falls below 10%, the trader will receive a risk alert email and if the trader wishes to maintain the position, additional margin will be required to prevent the margin account from being liquidated.

If the margin rate falls below 3%, the margin trading account will be liquidated by the platform, to repay the borrowed assets and the interest accrued on the borrowed coins in the account.

Calculation of Margin Rate and Interest

Margin Rate = Margin Value / All Borrowings

Margin Value = Account Coin Value - All Borrowings

Account Coin Value = Number of Coins * Marker Price * Coin Weight (The weight may vary for different coins. For example, the weight of BTC, ETH, USDT are 0.975, 0.95, 1 respectively)

All Borrowings = Number of Coins * Marker Price

Note: The marker price will be used to calculate the margin and the value of the borrowed coins, which may deviate from the latest market transaction price to avoid price manipulation.

Interest will be generated if there are borrowed coins in the margin account. Interest is charged on an hourly basis. The system will charge interest once every hour at the end of the hour. Interest is charged in the coin in which it is borrowed. If a trader has 0 amount of this coin in his actual margin account, and he borrows this coin, the interest will be added to the number of coins borrowed and the trader will have to return the actual number of coins borrowed + the accumulated interest when he returns the coins.

Interest calculation formula: Interest = Borrowed amount * (Coin Daily Interest/24) * Number of full hours. For example, if you borrow 100 USDT at 10:00:01 and return it successfully at 12:59:59, there are two full hours as11:00:00 and 12:00:00. interest = 100*(0.03%/24)*2=0.0025 USDT

Note: The borrowing rate of coin may be adjusted in different periods.

How to operate trading on AAX?

In terms of interface operation, the only difference between margin trading and spot trading is the addition of coin borrowing and coin repayment. Traders only need to complete three simple steps to successfully execute a margin trading.

Step 1: Transfer the margin. After opening a margin trading account, traders need to go to the Assets - Margin Account page, click on Transfer, and transfer a certain amount of margin.

Step 2: Borrow coins. On the Asset - margin Account page, click on Borrow to confirm the relevant borrowing information; or click on Trade to start trading on the Trading page to automatically complete the borrowing.

Step 3: Trade. On the margin trading page, use the available assets to make a transaction.

Step 4: Return coins. Return all the borrowed assets and the accumulated interest to complete the margin trading.

For detailed steps, please refer to: Learn Margin Trading in 5 Minutes

Analysis of the advantages and disadvantages of margin trading

The biggest advantage of margin trading is that it can enlarge the position, using a small amount of margin to borrow several times the amount of the original fuds to invest and increase the trading revenue. It also supports traders to adopt various trading strategies (bullish or bearish) according to the market trend to gain more profit. In addition, traders can choose leverage as a tool to hedge against market risk.

The disadvantage of margin trading is that the use of margin trading magnifies returns and also magnifies risks, so investors should be cautious about using high multiples of margint rading. In addition, margin trading will generate a certain amount of interest on borrowed coins. If the market movement is too large, there is a risk of liquidation. Traders can use limit stop-loss orders to control risk and reduce losses.

Button Configuration.

Go to MarginTrading (https://trade.aax.com/margin/BTC:USDT)

MarginTrading Frequently Asked Questions (https://support.aax.com/articles/6452929)

Newbie Guide to MarginTrading (https://support.aax.com/articles/6426041)

Risk notice: Digital currency deals are risky. Please pay serious attention to your trading and purchase with care. AAX is not responsible for your loss due to any behavior of your trading.


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