Margin Trade refers to a trade mode in which users borrow a certain amount of digital tokens by pledging digital tokens in KuCoin to make a long (buy) / short (sell) operation, so as to leverage large funds with small funds to earn more profits. There are several items you need to know about KuCoin margin trade.
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 principal to avoid forced liquidation. The advantage of this model is that there is no need to be forced to exchange the tokens currently held in order to borrow other currencies, and users can consider the entire cross margin account as a position that will only have one debt ratio. As long as the debt ratio is moderate, the risk of liquidation is very low.
At the same time, KuCoin margin allows users to borrow other digital assets 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 principal, borrowed assets, and interest. The calculation is as follows:
Debt Ratio= Account liabilities/Account assets
Account liabilities=Borrowed assets+Accrued interest=sum(whole borrowed assets*mark price)+sum(Accrued interest for all borrowed assets*mark price)
Account assets=sum(whole holding assets*mark price)
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 may obtain the current debt ratio data on the margin account page and margin trading page no matter whether you are visiting our website or using our App.
|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|
|0-10 times||90%||95%||97%||lower than 60%||lower than 96%|
Note: You can only transfer part of your funds out from margin account if the Debt Ratio is lower than 60%, if you'd like to transfer all of your funds out, kindly check the Liabilities in your margin assets page and repay all the loan first.
3. Lend and borrow
The digital assets you want to lend out shall 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 system will detect if there are available funds in the main account to be lent out once an hour).
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 = Daily interest rate*365
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 insurance fund.
The borrower can borrow up to 9 times the principal 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 mature.
The system will automatically use the corresponding assets in the borrower's margin account to repay the loan if the borrower does not repay when the loan is about to expire. And the system will automatically borrow the corresponding assets to repay the loan if there are insufficient or no corresponding assets in the borrower's account(Which means to lend the same amount of new loan to repay the old loan). The auto-renew procedure will be failed in the following situations:
a. The system will detect whether the current debt ratio in the borrower's account is lower than 96% before executing the auto-renew procedure. If negative, the system will fail to execute the auto-renew procedure.
b. The token has been delisted from the current funding market.
The system will partially liquidate the borrower's margin position to repay the mature loan if failed to execute auto-renewing. The coin of the highest value estimated in BTC will be liquidated firstly according to the mark price to repay until it pays off the corresponding loan.
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. And it was calculated with the actual time of your borrowing.
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.
4. Advantages and risks?
Compared with spot trading, the biggest advantage of margin trading is that it can leverage large capital through small one, increase position and enlarge profit. Compared with Future trading, the advantage of margin trading is that there are more tokens to choose from. At the same time, margin trade uses spot price, without premium, which is not easy to be influenced by sharply fluctuating within an extremely short period.
In addition, the margin trading fee of KuCoin is low, which is very competitive compared with other platforms.
4.2.1 Force liquidation and Dealt
Force liquidation: A forced liquidation will be triggered when the mark price of your holding assets and debt assets changes resulting in the debt ratio reaching 97%. All the assets you hold at the margin account will be sold to the debt assets to repay all the loans.
After triggering the Forced 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 margin 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 system will trade the holding assets to the debt assets in order to repay all the principal and interest. Liquidation will be ended if all loans are paid off or all assets are sold out. If it still can't cover the debts, your account will execute the negative balance procedure.
4.2.2 Negative Balance and Dealt
If the debts can't be fully covered after the liquidation is completed, your account will execute the negative balance procedure. Solutions to the remaining debts are as follows:
a. The remaining debts will be covered by the insurance funds. If there are insufficient insurance funds of corresponding assets to pay off the remaining debts, it will repay as much as it can.
b. During the negative balance procedure, the borrower's account will show a negative balance (the debt ratio is higher than 100%). At the same time, the withdrawal function of the whole account (including main account and Futures account) will be suspended. (If a negative balance procedure is triggered in the sub-account, the withdrawal function of the master account will be suspended.) The withdrawal function will be recovered automatically utill users pay off the negative balance by transferring corresponding assets from other accounts into the margin account.
5. Target /Suitable customers of Margin Trading
5.1 Institutions or experienced trading users
5.2 Spot trading users who pursue leverage profits
5.3 API quantitative trading users
5.4 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 risks.