How to Use Margin Trading
Traders try to use margin trading to amplify their profits in spot trading, but it also comes with greater risk. Users can borrow tokens to increase their amount of capital and enjoy the potential of higher profits by using FAMEEX’s Margin Trading. Users have to understand that margin trading is much riskier than regular spot trading.
1. What is Margin Trading?
Margin trading is a method of trading or buying assets using funds provided by a third party, which means they are borrowing from others. Margin trading allows traders to deploy a greater amount of capital, allowing them to leverage their positions. Margin trading amplifies trading results so that traders can realise higher profits on successful trades. Users have to pay attention to the risk because cryptocurrency is highly volatile and consider its financial situation.
2. How to calculate the Margin trading borrowing rate?
Interest would be taken from the users who borrow tokens in margin trading. FAMEEX’s margin trading interest rate is calculated on an hourly basis. If funds are borrowed for less than 1 hour, the interest will still be charged for an hour. Users have to repay the loan amount and interest at the same time when users decide not to borrow from FAMEEX.
3. How to calculate the Risk Rate
The risk rate will be calculated based on users’ leverage ratio and market price.
Risk Rate = (Total Asset Value - Accrued Interest) / Outstanding Loan Amount X 100%
Total Asset Value = Sum of Assets Value in Margin Trading Account
Borrowing Assets = Sum of Unrepaid Assets Value in Margin Trading Account
Accrued Interest = Every Transaction of Borrowing Token Amount X Hourly Rate X Duration of the Loan - Repaid Interest
4. Risk of Margin Trading
Margin trading allows users to amplify their profits with a relatively small amount of capital, but it may result in a great capital loss if the prediction goes wrong. Most traders may avoid using a high level of margin trading to prevent the liquidation of their positions.
5. How to lower the Risk Rate of Margin Trading?
a) Control your levels of margin trading reasonably.
b) Pay attention to the market changes, decisively stop loss or taking profits, and close your positions if needed.
c) Deposit margin immediately to ensure the risk rate is higher than the liquidation risk rate.
6. How to profit more when the price is going up by using margin trading?
For example, in BTC/USDT, FAMEEX supports max. 5x leverage and you predict that the price would go up to 20,000 USDT from 10,000 USDT. If your initial capital is 10,000 USDT, then you are capable of borrowing max. 40,000 USDT from FAMEEX to buy 5BTC at 10,000 USDT with 50,000 USDT in total. In this case, if the price actually goes up to 20,000 USDT and you sell it immediately, your profit would be 5BTC X (20,000 USDT - 10,000 USDT) = 50,000 USDT. On the contrary, you would only make 10,000 USDT if you use your own money without using leverage. 5 times leverage would result in 5 times profit.
7. How to make a profit in short selling by using margin trading?
For example, in BTC/USDT, FAMEEX supports max. 5x leverage and you predict that the price would fall to 10,000 USDT from 20,000 USDT. With 10,000 USDT(equivalent to 0.5BTC), you are capable of borrowing max. 2BTC and selling your 2.5BTC at 20,000 USDT, then you can have 50,000 USDT. You may buy back the 5BTC when the BTC price falls to 10,000 USDT. Your profit would be 5BTC X (20,000 USDT - 10,000 USDT) = 50,000 USDT. On the contrary, you would only make 10,000 USDT if you use your own money without using leverage. 5 times leverage would result in 5 times profit.
8. Funds Transfer
You cannot deposit your funds into the margin wallet directly. You may transfer the funds from other wallets. If there is any outstanding loan, the maximum amount can be transferred as below:
(Total Assets Value - Accrued Interest) - Borrowing Assets X 〔Leverage ratio / (Leverage ratio - 1)〕
After calculation, if the maximum amount of the transferable fund is larger than the available amount of funds, then the maximum amount of a transferable fund would be all the funds you can use for the account.