1. Cross margin
KuCoin margin adopts the cross margin model, which means that all assets (regardless of currency) in the margin account will be used as a margin to avoid forced liquidation. The advantage of this model is that there is no need to be forced to replace the tokens currently held in order to borrow other currencies, and the entire cross margin account as a position will only have a debt ratio. As long as the debt ratio is moderate, the possibility of liquidation is very low
At the same time, KuCoin margin allows users to borrow another digital asset by holding one digital asset (only digital assets supported by margin trading, this is the special product of KuCoin margin). For example, if a user borrows USDT by holding ADA in the margin account, if the account debt ratio is less than 60%, the user can transfer a certain percentage of USDT from the margin account.
2. Debt ratio
If the user does not borrow any digital assets, the debt ratio is 0%. When the user borrows a number of digital assets, the system will calculate the debt ratio based on the user's margin, borrowed assets, and interest. The calculation is as follows:
Debt Ratio= Account liability/Account assets=( Valuation token liabilities + base token liabilities* price）/ (valuation token assets + base token assets * price)
=> Valuation token liabilities + base token liabilities* price=Debt ratio* (valuation token assets + base token assets * price)=Valuation token assets * liability ratio + base token assets * price * debt ratio
=> Base token liabilities * price - base token assets * price * debt ratio = valuation token assets * debt ratio - valuation token liabilities
=> Price = (valuation token assets * debt ratio - valuation token liabilities) / (base token liabilities - base token assets * debt ratio)
The Debt Ratio will be refreshed every 5 seconds. When the user's debt ratio reaches 95%, the user's account will trigger a warning and KuCoin will send an SMS and email warning to the user based on the security settings. A forced liquidation will be triggered when the debt ratio reaches 97%. You can check the current debt ratio on the left side of the margin trading page.
|Leverage Multiples||Initial Debt Ratio of Full Leverage(except interests)||Debt Ratio of Alert||Debt Ratio of Forced Liquidation||Debt Ratio of Transfer-out||Debt Ratio of Auto-renewing|
3. Lend and borrow
The digital assets you lent out will be stored in the main account. The lender lends a certain amount of digital assets through a specific period and interest rate to get profits. KuCoin provides loan periods of 7, 14, and 28 days.
Once the digital asset is lent, the lender cannot countermand it in advance before expiration. The digital assets and interests repaid by the system after maturity or repaid by the borrower ahead of the maturity date will be returned to the lender's main account. Lenders can enable the Auto-Lend function and all the extra funds beyond the specified amount you reserved will be lent out automatically.
The annual rate of lending will be calculated based on the daily interest rate set by the lender. The calculation is as follows:
Annualized profit rate = (1 + day rate * term) ^ (365 / term) - 1
Note: (365 / term) floor rounding; the term is the period of the current loan (to reduce complexity, there is no automatic borrow period), and the annual profit rate is displayed in the form of a percentage, with two decimal places reserved. For example, 20.31%.
The interest in margin lending will be partially divided. The platform will charge 5% of the interest income as the platform service fee and 10% as the risk reserve.
The borrower can borrow up to 9 times the total assets in the margin account. If one user holds 1 USDT in the margin account, the borrower can borrow up to 9 USDT. You can borrow different currencies, such as holding BTC in your margin account, you can borrow other digital assets such as USDT and ETH. Users can repay the loan at any time before the loan is due. When the borrowed digital assets expire, and the borrower does not repay the loan ahead of the maturity, the system will automatically return the corresponding assets to the borrower’s margin account.
If the borrower's margin account does not hold the tokens that need to be repaid, the system will automatically borrow the corresponding digital assets for repaying by default. If the auto-borrow fails, the borrower's margin account will be forced to liquidate. Forced liquidation means that other tokens in the margin account are replaced with tokens that need to be repaid and then returned.
The interest will be charged for the first time once you borrowed funds successfully.
The accrued interest is updated every hour and will be settled when the borrowers repay.
Interest repayment: If you choose to repay part of the loans, the system will repay the interest first until all of the loans have been repaid, and the rest of it will still be charged interest.
Advantages and risks?
Compared with spot trading, the biggest advantage of leverage trading is that it can leverage large capital through small one, increase position and enlarge income. Compared with Future trading, the advantage of leverage trading is that there are more transaction tokens to choose from. At the same time, leverage uses spot price, without premium, which is not easy to be influenced by sharply fluctuating within an extremely short period.
In addition, the leverage trading rate of KuCoin is low, which is very competitive compared with other platforms.
2.1 Force liquidation and its handling
Force liquidation: when the token price changes, resulting in the user's all assets can only repay the principal and interest of the loan or have a little residual risk, the system will trigger the Force liquidation and the assets will be used to repay the principal and interest. After leverage trading, when the debt ratio is greater than or equal to the debt ratio (97%) due to the change of asset price, the Force liquidation operation will be triggered.
After triggering the Force liquidation:
a. According to your account settings, there will be SMS / email + account notification if you open the app or website version account.
b. Restricted operation:
I: All leveraged trading pairs are not allowed to place orders (in any form);
II: all open orders in margin trading will be automatically canceled by the system;
III: No token can be transferred into the margin account during the period when the margin account is operating force liquidation;
The funds in a margin trade account will be used to repay the principal and interest. Liquidation will be ended if there are enough funds. If not, you will get into a negative balance. The balance after the liquidation is used to repay the principal and interest; the insufficient repayment of the principal will show a negative balance in the margin account.
2.2 Negative Balance and Dealt
In the event of a Liquidation, the position would be closed at the Last Traded Price on the platform. If the loss on the position is higher than its Initial Margin, the extra loss will be covered by the Insurance Fund. Should it be insufficient to cover that loss, your account will show a negative balance.
For the extra loss：
a. The extra loss will be covered by the insurance fund if the specific coin can cover the loss. A specific repaid record will be generated in your repaid history, marked: Insurance Fund Repay.
b. All the insurance fund for a specific coin will be used to cover as much as a loss if the insurance fund is insufficient to cover the gap between the final execution price and bankruptcy price.
c. In the event of a negative balance, it shows a negative balance in your borrow account and a debit in your margin account. Withdrawal function is unavailable and the funds you repaid to margin account will transfer to insurance fund until all the loss has been covered.
Target /Suitable customers of leveraged Trading
1. Institutions or experienced trading users
2. Spot trading users who pursue leverage profits
3. API quantitative trading users
4. Users with certain risk preference
Margin trading is widely praised by cryptocurrency traders because of its characteristics of using small funds to leverage large funds and amplify returns. Traders who understand its principle and operation may obtain returns far beyond the principal.
However, risk control can not be ignored. Many traders may continue to increase their investment in order to obtain more profits due to the current rising earnings, which may lead to investment failure. KuCoin sincerely recommends that traders set up stop profit and stop loss to actively control risk.