This article aims to provide a glossary to explain all the commonly used terms in leverage trading.
Assets
Total Assets: The total sum of tokens in your Margin Account for Spot, including Available Assets and Assets on Hold.
Transferred Assets: The amount of tokens transferred from other accounts to your Margin Account for Spot.
Borrowed Assets: Total Borrowed amount of tokens in Margin Account for Spot as collateral.
Available Assets: The total amount of tokens available for trading in Margin Account for Spot, or Transferred Assets plus Borrowed Assets.
Assets on Hold: The amount of tokens which is unavailable for creating orders, usually refers to the tokens that are currently in use for open orders.
Leverage
Borrowing Limit: Maximum quantity of token available to borrow of the corresponding token pairs. Okcoin determines borrowing limits for users with maximum leverage and other risk parameters.
Maximum Leverage Formula: Max Leverage = (Total Assets - Borrowed Assets - Interest) * (Maximum Leverage Multiplier - 1) - Borrowed Assets
Example of maximum margin lending: A user holds 5 BTC in total. Outstanding loan is 1 BTC and interest 0.01 BTC. If the maximum leverage level is 3x, the maximum margin lending amount = (5 - 1 - 0.01)*(3 - 1) – 1 = 6.98 BTC”
Maximum Leverage Multiplier refers to the maximum amount of leverage available, currently 3X (3) on Okcoin.
Margin Ratio and Forced liquidation
Margin ratio: The indicator for evaluating margin account's possibility of triggering forced liquidation. When the margin ratio ≥50% under 3X leverage, the surplus balance can be transferred out to Spot Account. When margin ratio is ≤20%, it indicates a high-risk status. The system will notify the user automatically via SMS. When margin ratio is ≤10%, forced liquidation will be triggered and SMS will be sent to notify the user.
In the formula below, 'Base' indicates the base currency and 'Trading' indicates the cross or trading currency. In BTCUSD, BTC is the base currency and USD is the cross or trading currency.
Margin ratio Formula: Margin ratio = [(Total Assets (In Quote Currency) – Borrowed Assets (In Quote Currency) – Interests Payable (In Quote Currency) ) / Last Trade Price + (Total Assets (In Base Currency) – Borrowed Assets (In Base Currency)– Interests Payable (In Base Currency)]/(Borrowed Assets (In Quote Currency) / Last Trade Price + Borrowed Assets (In Base Currency) ) * 100%
Example of margin ratio calculation: A user trades BTC/USD on the margin trading market, the quote currency is USD and the dealt currency is BTC. The user holds 0.3 BTC, borrows 0.6 BTC, and then sells all 0.9 BTC. After a while, the total asset in the dealt currency is 0 BTC and that in the quote currency is 9,000 USD, the interest is 0.001 BTC and the last trading price is 9,710.28. The margin ratio = [(9000-0-0) / 9710.28 + (0-0.6-0.001)] / (0/9710.28+0.6)*100% = 54.31%
Forced liquidation: When margin ratio ≤10%, forced liquidation will be triggered. All positions will be taken over by the platform and force closed in the market.
Margin Call Ratio: 10%
Estimated Price on Margin Call: A certain amount of margin is required for leverage trading in Okcoin. When unfavorable changes occur in the market, such as a reverse trend of market direction which contradicts the direction opened, the account balance may shrink below the perimeter, and system will force liquidate all holding positions at best bid /offer to pay off the debt.
Formula (Est. Price of Margin Call): Forced Margin Call Est. Price = (Borrowed Assets (In Quote Currency) * (1+Margin Call ratio) + Interests Payable (In Quote Currency) – Total Assets (In Quote Currency) / (Total Assets (In Base Currency) – Interests Payable (In Base Currency) – Borrowed Asset (In Base Currency) * (1+Margin Call Ratio))
Example of margin ratio calculation: A user trades BTC/USD on the margin trading market, the quote currency is USD and the dealt currency is BTC. The user holds 0.3 BTC, borrows 0.6 BTC, and then sells all 0.9 BTC. After a while, the total asset in the dealt currency is 0 BTC and that in the quote currency is 9,000 USD, the interest is 0.001 BTC and the last trading price is 9,710.28. The margin ratio = [(9000-0-0) / 9710.28 + (0-0.6-0.001)] / (0/9710.28+0.6)*100% = 54.31%” “The estimated forced-liquidation price = (0 + 0*54.31% + 0 - 9000) / (0 - 0.001 - 0.6 - 0.6*54.31%) = 9710.204
Liquidation fee formula:
(a) In case of a fully forced liquidation, the liquidation fee = liquidation amount * [the minimum initial margin rate] of the user’s position * 10%. After the liquidation, if the remaining assets in the account are less than the liquidation fee, all the remaining assets will be fully charged as the liquidation fee;
(b) In case of a partial forced liquidation, the liquidation fee = partial liquidation amount * [the minimum initial margin rate] of the user’s position * 10%;
In case of margin call loss, the remaining balance less than a tick size will be allocated to the [margin trading insurance fund] as liquidation fee.”
Short
Short Selling: Selling of tokens which the user borrows, and will buy back after a period of time.
Interest & Repayment
Interest Computation: Interests would be computed and incurred per each borrowing instruction. Interests would then be incurred once after the borrowed order is accepted and accrued per 24-hour intervals. Interests payable is compounded to next terms on each 15 days (unpaid interests expense would be computed as principal and thus incurring compounded interests).
Repayment: Repayments will be used to cover the earliest loan orders, and pay off interest before principal. The repayment status will change to completed once all the debts have been paid off, then further interest will not be applied for the order.