CoinDCX

Introduction to Crypto Margin Trading

Trading with 10X leverage with 250+ coins

Margin Trading Glossary

This section aims to provide a glossary to explain all the commonly used terms in margin trading.

Total Balance: CoinDCX uses a common wallet system for spot and margin trading. Total assets value is the total sum of tokens in your CoinDCX wallet account for Spot, including available balance and balance on hold (locked balance).

Available Balance: The total amount of tokens that are currently available for trading either in Spot Trading and Margin Trading. This balance can be used in deposits/withdrawals of funds without any restriction.

Locked Balance: The amount of tokens which is unavailable for creating orders, usually refers to the tokens that are currently in use for open orders.

Borrowing limit: It is the max quantity of tokens available to borrow of the corresponding token pairs. The leverage available is common to all the platform users and CoinDCX would determine the maximum leverage (range varies from 1x to 5x) based on volatility, funds availability and liquidity in the selected token pairs.

Target Price: The price at which the trader plans to buy/sell or close the order position is called the Target Price. When the Target price is hit, the trade is closed and the trader’s funds are settled according to the P&L incurred. Target price feature is available if the trader checks the Bracket order checkbox.

Stop Loss (SL) Price: The price at which the trader wishes to Stop Loss is the SL Price.

Position Quantity: A position is the quantity of crypto involved in trade. There are two types of positions: Long and Short. Depending on market trends, movements and fluctuations, a position can be profitable or unprofitable.

P&L: The Profit or Loss is the indicative Profit or Loss in an open position. Note that, until the position is closed, the profit or loss is not actually realized or added/deducted from the trader’s balance.

Limit Margin Order: This is a limit order with leverage. Elements of this order like Stop Loss Price, Target Price are the same as Market Order.

Market Margin Order: This is a market order with leverage. Elements of this order are – leverage, Target Price and Stop Price.

Long Position: When you buy, you are opening a long position as you expect the price to go up.

Short Position: When you sell, you are opening a short position as you expect the price to go down.

Multiple target Orders: In multiple target orders, you can select to sell your coin at different price points in parts instead of making one single order.

Initial Margin: Initial margin is the initial price that the investor must pay for with his own collateral. Initial margin depends on the leverage taken.

Margin Taken: Margin Taken is the fund lent by the exchange to the trader in exchange of the collateral.

Price: This is the price at which the trader seeks to gain entry/ open position in the trade.

Estimated Liquidation price: It is the highest estimated bid in the case of long position or the lowest ask in the case of a short position at which forced liquidation occurs. It is only an estimate as one cannot estimate the real price at which the forced liquidation will occur since it depends on the number and size of your open positions and orders, current market and order book conditions, and current value of your collateral for example.

Base Price: it is the price at which your position should be closed in order to breakeven.

Unrealized P/L: Estimated P&L in case you were to close your position. It includes the lending fees that are already paid.

Unrealized Lending Fees: It is the estimated value of outstanding fees on your currently-open loans.

Forced Liquidation: When all your positions or a part of it are closed automatically for preventing further losses and ensuring no default on your loans, a forced liquidation occurs. They are executed by using one or more market orders and are affected by the order book liquidity at the time of these orders that will determine the extent of your losses from the liquidation. It occurs when your current margin falls below your Maintenance Margin.

Maintenance Margin: It is the % of your Total Borrowed Value that your Net Value must be for avoiding a forced liquidation.

Total Borrowed Value: It is the total BTC value of your open loans and is determined by the current amount of your BTC borrowing plus the amount of BTC that you would need for buying on the current order books, the total of all other currencies you are borrowing at that moment.

Margin Trading

Margin trading is essentially a form of trading in which at least a part of the consideration for the transaction is borrowed. For e.g. If the consideration for a transaction is $100 and you have only $70 in your account, your crypto exchange or broker can provide you with the remaining $30 in order to carry out that transaction. In this form of transaction, this margin of $30 that is provided to you by your exchange is essentially a loan that needs to be repaid with the interest levied by the exchange when the margin call is made. 

Anyone looking for additional leverage in their investment could be right for Margin Trading. Leverage is when you borrow capital as a funding source while investing to expand your assets, to increase the potential return of an investment. It is particularly common in the international Forex market which has a low-volatile market but is also used in Stock, Cryptocurrency, and Commodity markets.

Margin trading has a Long and Short Position. It stands for the period of time in the trade. Long Position is when the trader thinks the price will go up in the future, so the trader buys additional cryptocurrency to sell when the prices go up. Short position is when the trader speculates the price will drop in the future and dumps his/her holdings in order to buy the same at a cheaper price and thus make profits. CoinDCX offers shorting options on over 50 tokens in 66 markets (BTC and USDT) upto 10X leverage. Users can now maximize their gains when prices go south. 

CoinDCX has adopted dynamic algorithm Margin for all its margin offerings. Dynamic margin trading helps traders better manage the risks associated with trading leveraged financial products, particularly in times of market illiquidity and high volatility. Dynamism is introduced on the platform by setting different leverages for different tokens based on their prices, liquidity, and trading volume.  CoinDCX does not manually enter the level of leverage in the different markets on Margin. We resort to an automated algorithm and process that keeps updating the leverage for each cryptocurrency pair. Having a dynamic margin product helps traders better manage the risks associated with trading leveraged financial products, particularly in times of market illiquidity and high volatility. This is a common practice followed in major financial markets that provide features of leverage trading. 

The different options of margin availability for leverage only mean how much more of Bitcoins you can sell as compared to your funds available. Selecting 2X means that a person having $500 worth of USDT can short sell Bitcoins worth $1,000 of USDT if the trader chooses 2X leverage. The trader on a later date will have to purchase the remaining Bitcoins and pay them back with interest.

The main advantage of margin trading is the increased buying power which comes from the additional capital that can be used if the balance in your wallet is less than the total size of the transaction. This gives the buyer additional power to trade in cryptocurrency. Trading on the basis of margins is especially advantageous in a situation when you want to take a long position and need some extra money to buy additional cryptocurrency. Margin Trading is also advantageous while undertaking risk management activities such as hedging and is also used for practices such as speculative trading or if you do not want to spend all the balance in your wallet

Types of Market orders are Multiple target Orders, Limit Margin Order, and Market Margin Order.

Margin Position Types

Long Position: In this position, funds are bought by the trader and then sold at the target Price. Traders open a long position in the hope that the price will go up in the future.

E.g. if a trader, trading in the XRP/BTC pair, longs 1000 XRP at 2x leverage. If the BTC equivalent of 1000 XRP is 0.09 BTC (considering XRP/BTC is at 0.00009000), then the exchange collects a collateral of 0.045 BTC only. Thus, allowing 2x leverage.

In this long position, exchange forwarded 0.045 BTC to the trader for buying 500 XRP, in addition to the 0.045 BTC held by the trader.

Short Position: In this position, funds (that the trader doesn’t own) are sold first and then bought at a later time. So, when you open a short position, the exchange sells the crypto on your behalf and you owe the quantity of crypto involved in the trade, to the exchange. At a later point, you return this obligation by buying the coin at a lower price.

Traders open a short position in the hope that the price will go down in the future. E.g. If a trader, trading in the XRP/BTC pair, shorts 1000 XRP at 4x leverage. If the BTC equivalent of 1000 XRP is 0.09 BTC (considering XRP/BTC is at 0.00009000), then the exchange lends the trader 1000 XRP against a collateral of 0.0225 BTC.

The trader owes the 1000 XRP to the exchange and can return this obligation at a later time, by buying it at a lower price.

Available Order Types

Limit Margin Order: This is a limit order with leverage. Elements of this order like Stop Loss Price, Target Price are the same as Market Order. Leverage can be selected by toggling between 1x to 4x. 

Market Margin Order: This is a market order with leverage. Elements of this order are – leverage, Target Price and Stop Price. 

Stop loss and forced liquidation

Every margin order has its own liquidation price which depends on the leverage used for the respective order. The maximum loss that a user can incur is the balance locked for a margin order. If a situation for liquidation arises, CoinDCX will place a market sell order immediately.
CoinDCX will apply the following rules for liquidation of a margin order –
a) Long:
i) Ideal liquidation price = (Entry Price – Entry Price/Leverage)
ii) A safety factor of 7.5% (wrt entry price) has been applied to take market slippage and order placement latency into account. This will prevent bankruptcy of the user’s account
iii) Actual Liquidation Price = Ideal Liquidation Price + (0.075 * Entry Price), which is rounded up according to currency’s price precision

b) Short:
i) Ideal liquidation price = (Entry Price + Entry Price/Leverage)
ii) A safety factor of 7.5% (wrt entry price) has been applied to take market slippage and order placement latency into account. This will prevent bankruptcy of the user’s account
iii) Actual Liquidation Price = Ideal Liquidation Price – (0.075 * Entry Price), which is rounded down according to currency’s price precision

Multiple target orders

Previously, a single order contained a single entry and a single target (exit) order, meaning that suppose you have 100 XRP long, then you can just specify a single target price where those 100 XRP would be sold at. But now, Margin trading supports multiple target orders, meaning that you can decide to sell those 100 XRP at different price points in parts. For example, you may sell 40 XRP at 8000 sats and the remaining 60 XRP at 7000 sats. So you have finer control over your target orders and you may utilize multiple price points to close your position in parts, with individual control (for editing or cancelling each [part] target order).

Open a Margin Position

Previously, a single order contained a single entry and a single target (exit) order, meaning that suppose you have 100 XRP long, then you can just specify a single target price where those 100 XRP would be sold at. But now, Margin trading supports multiple target orders, meaning that you can decide to sell those 100 XRP at different price points in parts. For example, you may sell 40 XRP at 8000 sats and the remaining 60 XRP at 7000 sats. So you have finer control over your target orders and you may utilize multiple price points to close your position in parts, with individual control (for editing or cancelling each [part] target order).

Close a Margin Position

How to add a (partial) exit order for an open position:
1. For a given position, click on ‘Add Targets’ by clicking on vertical ellipses ().

2. If this is your first target order for this position, it would directly open a form where you can add a target order of market or limit type for closing position.

3. If this position already has some target orders, it would be listed there, which can be cancelled or edited (depending on the order type and order status).
4. Specify a quantity and price (not needed for market order type) and click submit to place the request.
5. After the request goes through successfully, the list should refresh showing your updated target orders.

Examples:
1) Long with 4x leverage
If a trader, trading in the XRP/BTC pair, longs 1000 XRP at 4x leverage with an entry price of 0.00008000
The user may also specify 2 target orders of this position: 500 XRP at 0.00008100 and other 500 XRP at 0.00008200

2) Short with 2x leverage
If a trader, trading in the XRP/BTC pair, shorts 1000 XRP at 4x leverage with an entry price of 0.00008000
The user may also specify 3 target orders of this position: 300 XRP at 0.00007800 and other 300 XRP at 0.00007600, and the remaining 400 XRP at 0.00007500
Note: The final settlement normally happens instantly, but can take up to 24 hours in some rare scenarios.

Changing margin (or changing leverage)

– For a given open order, you can add or remove margin to decrease or increase its effective leverage, respectively. This could be used to prevent your order from hitting the Stop Loss due to sudden volatility in the market.
– This could be useful where an order comes very close to liquidation, but the trader is confident of the bounce-back of the market price and wants to avoid liquidation by adding more margin (thus increasing the hard liquidation price limit). 
– It could also be used when the trader sees a better opportunity and would like to place a new order but does not have the funds to do so, thus reducing the margin allocated to another open order (which leads to freeing up some funds in his wallet).

How to add margin (or reduce leverage)

1. For a given open order, click on ‘Add Margin’ by clicking on vertical ellipses (⋮)next to your order.
2. Enter the additional amount that you wish to add as margin to that particular order:
3. You may check the new (estimated) hard liquidation price as well as the new (estimated) leverage after entering the amount (but before submitting).
4. Make sure that the amount you’re trying to add is available in your wallet.
5. Submit to place the add margin request.
6. After the request goes through successfully, the specified amount should be deducted from your wallet, while the hard liquidation price and leverage of your order should have been changed.

How to remove margin (or increase leverage)

1. For a given open order, click on ‘Remove Margin’ by clicking on vertical ellipses ()next to your order.
2. Enter the amount that you wish to remove from the order’s initial margin.
3. You may check the new (estimated) hard liquidation price as well as the new (estimated) leverage after entering the amount.
4. Make sure that the new hard liquidation price is not very close to the current market price (to avoid instant liquidation).
5. Submit to place the remove margin request.
6. After the request goes through successfully, the specified amount should appear as an available balance in your wallet, while the hard liquidation price and leverage of your order should have been changed.

Important Points to keep in mind when changing margin:

1. Always check the updated Stop Loss price and updated leverage after the request goes through as the values show before placing the request are just an estimation.
2. If the Stop Loss price of the order was never set manually (or it is equal to the hard liquidation price), then it will also be changed to be equal to the updated hard liquidation price.
3. If the Stop Loss price of the order lies beyond the hard liquidation price after changing the margin, then it will also be changed to be equal to the updated hard liquidation price.
4. The change margin request won’t go through if it results in effective leverage beyond the extremes for a given market. Thus, it cannot be less than 1x or greater than Zx (where Z depends on the market, typical example being 4x or 5x).
Example of changing margin:
Suppose a trader, trading in the XRP/BTC pair, longs 700 XRP at 4x leverage with an entry price of 0.00003500 and an SL price of 0.00003000. His hard liquidation price comes to, say 0.00002800, while his initial margin locked is 0.0058 BTC. Now, due to a sudden fall in the market, the market price comes to about 0.00003100. He changes the SL price to from 0.00003000 to 0.00002850. Now, if the market price continues to fall, but the trader is confident that it will rise back again, he may decide to add some more margin to push his hard liquidation price even further. Say he adds another margin of 0.001 BTC, which pushes the hard liquidation price to about 0.00002500. Note that his actual SL price still remains 0.00002850, even after adding the margin. Only the hard liquidation price has changed. So now he should edit his SL price to up to 0.00002500 manually, which he couldn’t have done before adding the margin (due to old hard liquidation price being 0.00002800).

Trade Charges, P&L Calculation Schema

Fees for Trading

Total fee = Entry fee + Exit Fee

Entry fee = (Quantity * Avg entry price) * (fee percent)/100

Exit fee = (Quantity * Avg exit price) * (fee percent)/100

Interest Calculation

CoinDCX automatically gives you the additional margin and charges interest @0.05% per day (~0.002% per hour). Additional margin is the amount a trader has borrowed from the exchange to fulfil a particular order. When the position is open for more than 1 Hour, the interest expense is calculated based on the following formula:

Interest Charged = (Interest rate Per Hour * hours * additional margin) / 100

where Additional margin = (Order Value – Locked Balance for the order).

In case of a bracket order and if your order is partially settled, you will be only charged for the margin which is remaining on your open order, only for the duration the order is open on DCXmargin. In case you add more margin in an open position, the interest rate will only be charged on the updated (lesser) borrowed amount.

P&L Calculation

Long 
Gross P&L = Quantity * (Avg Exit price – Avg Entry price)
Profit = Gross P&L – Total fee – Interest charged

Short 
Gross P&L = Quantity * (Avg Entry price – Avg Exit price)
Profit = Gross P&L – Total fee – Interest charged
Please note that we show Gross P&L and Net P&L on the website

Margin Trading Rules

– These rules are formulated under a lawful, fair and transparent way to maintain reasonable control of the lending or borrowing of the digital asset and margin trading, preserve an orderly market, and protect the legal rights of all investors.
– The loan and margin trading stated in this document is the investment behaviour in which an investor provides collateral to CoinDCX (“We”, “Us”, “Our platform”, “Our”) to borrow assets for trading.
– All loan and margin trading on https://coindcx.com shall comply with the rules stated in this document. Other activities not stated in this document shall comply with “CoinDCX Terms of Service” and other rules set on the website https://coindcx.com
– We provide information release, management and risk control services for token lending. However, there have been no promises, guarantees or warranties suggesting that any trading will result in a profit or will not result in a loss. Investors shall carefully consider whether such an investment is suitable in light of their own financial position and investment objectives, and invest responsibly at their sole discretion.

Margin Trading Mechanism

Entry Order

– Entry order is placed as soon as the user creates an order.
– Entry order is filled according to market conditions, based on order-type the user specified while placing the order (Market, Limit or Stop Limit order).
– Entry order is placed as a Buy order in case of Long margin order and as a Sell order in case of Short margin order.

Target Order

– Target order is placed only after the entire entry order completes.
– Target order can be placed as a market order or as a limit order, as specified in the multiple target orders.
– If no individual target order is specified, and a target price is present for the position, then at the time the position opens (entry is completed), a target order is placed as a limit order at specified target price for the entire open quantity.
– Target order is always placed as an order on the opposite side (i.e. Sell order in case of Long margin order, Buy order in case of Short margin Order).
– Target order is not placed for partial (or zero) filled entry orders, to avoid fragmentation of orders based on each trade for entry order.
In case of multiple target orders for a given position, the quantity of each of those orders should satisfy the basic validations of a normal order, such as min quantity and max quantity as specified in the currency pair.

Stop Loss (SL) Order

– SL order is placed only when the last trading price or a market crosses the specified SL price of the margin order.
– SL order is always placed as a Market order, hence in most cases, it leads to some slippage. So, if XX is the specified SL price for a margin order, it does not guarantee that the exit will happen exactly at that price XX.
– SL order is always placed as an order on the opposite side (i.e. Sell order in case of Long margin order, Buy order in case of Short margin Order).
– SL order is not placed for partial (or zero) filled entry orders, to avoid fragmentation of orders based on each trade for entry order.

Exit Order

– Exit order is placed only when the user clicks on the ‘Exit’ button for a margin order.
– Exit order is always (and immediately) placed as a Market order, hence in most cases, it leads to some slippage.
– Exit order is always placed as an order on the opposite side (i.e. Sell order in case of Long margin order, Buy order in case of Short margin Order).
– Exit order is not valid for partial (or zero) filled entry orders, to avoid fragmentation of orders based on each trade for entry order. To exit the position in such cases, use the ‘Cancel’ option for the margin order.

Additional Terms

– Investors shall comply with local regulations and law as well as the related rules of trading and margin trading of https://coindcx.com. We reserve the right to suspend or cancel any user’s access to margin trading, take over the account, force-liquidate all positions or any related risk control measure when deemed necessary to maintain an orderly market.
– The terms not less than, within, not more than are all inclusive terms and the terms less than, beyond and over/below are exclusive terms.
– The terms are established by our company. This document or any further amendments are in effect immediately after make known through our blog/FAQ/Official communication channels/Website.
– We reserve the right of interpretation of this document.
– The terms are implemented from January 16, 2019.
– Positions will remain open for an indefinite period if they are not liquidated due to price movements. If CoinDCX’s team detects any risks or issues related to the loss of organization’s funds, users will be informed 6-12 hours before any liquidation.