What is margin trading?
Trading on margin is the practice of using borrowed funds to trade the value behind a cryptocurrency. Wherein it is the difference between the total value of an investment and the loan amount that is referred to as the margin.
How does Short work?
When selling short using the margin trading strategy, often referred to as shorting, one borrows assets such as BTC or ETH against some deposited collateral in order to sell the cryptocurrency at a higher price, ideally repurchasing it at a lower price later on. In this way, the profit accumulated becomes the price difference between the cost of selling and buying.
What are the values of shorting on XREX?
Supported trading pairs
USDT |
BTC, ETH, SOL, XRP, BNB, GMT |
Common terms-to-know
Isolated margin | XREX is using isolated margin management for Short: That means each position opened is isolated from other positions and the rest of your account balance; and if a trade goes wrong, your entire holding is not at risk. This allows you to manage your investment strategy by restricting the amount of margin distributed between different positions. |
Spot wallet | This is your primary wallet. Typically, you would have to deposit into a margin account in order to pledge your collateral when you're opening or adding to the position, however, at XREX you pledge your collateral directly from your spot wallet; removing the hassle of having to transfer between accounts! |
Collateral | The assets pledged as investment principal to guarantee the trade you open is going to be repaid.
Collateral is subjected to USDT. |
Margin level | Monitoring this ratio is helpful to measure the risk of your short position as it compares the total value of assets under the isolated account / total value of liabilities. In practice, once you pledge your collateral and open a short position, the initial risk rate for your trade will have a margin level set at around 200%. Click here to see exemplified values displayed on the XREX interface.
Margin level (calculation) = The total value of assets under the Isolated account / total value of liabilities |
Margin call | When the margin level for your position falls to around 140%, a margin call will be triggered via email and push notifications to notify you about the current risk. When a margin call occurs, you'll be advised to either close the position to prevent further losses or provide more collateral. |
Risk status | For risk management purposes, XREX displays risk statuses dependent on the "health" of your position. The better the margin level, the safer the position is and vice versa.
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Current balance | This value reflects the net value of your short position, calculated by the total value of assets minus the total value of liabilities under the position. It is also a reference value of the amount you would receive if you were to close the position. Click here to see exemplified values displayed on the XREX interface.
Current balance (calculation) = Total value of assets - Total value of liabilities |
Forced liquidation | When the collateral of your position does not uphold a sufficient margin and the margin level falls to around 120%, the system will execute the liquidation process in accordance with the liquidation price. This means your short position will be forced to buy back and return the borrowed assets, and the remaining value of the collateral will be returned to your spot wallet.
Please note that once the liquidation process is triggered, it is automatic and won't stop until it's been completed. |
Liquidation price | When you open or adjust a short position, XREX will generate a liquidation price based on the following calculation:
Liquidation price (calculation) = (total collateral * filled_ratio + underlying assets value) / [ ( amount + interests) * liquidation ratio] |
Liabilities | Total value of liabilities consist of debt and funding fees. Whereas, debt is the assets you borrow from XREX to open a margin trade and funding fees are based on the asset type and its current value, and will be charged hourly at the time of borrowing.
Funding fee (calculation) = Debt amount * Yearly rate/365/24 * # hours * exchange rate (pair / USDT) Debt = Assets borrowed from XREX to open position |
P&L ratio | Profit and loss ratio also known as capital gain or capital loss is a value that helps you monitor the performance of your position and it is calculated as unrealized profit or loss compared to your initial collateral. Click here to see exemplified values displayed on the XREX interface.
P&L ratio (calculation) = (Unrealized P&L / Collateral) |
Leverage | The number of assets that users can use to multiply a position (i.e. 3x leverage is to multiply your position by 3x). Currently, no leverage is available. |
Profit vs. loss examples
Profit vs. loss examples
When shorting Ethereum (ETH) with no leverage (1x) becomes profitable:
You aim to short ETH when its value is $1,400 as you predict the price to fall in the upcoming days.
You borrow ETH from XREX by providing collateral and sell it for $1,400.
After a couple of days, ETH price falls to $900 (a 35% ↓ decrease in value)
You close the trade by buying ETH for $900 and return it to XREX.
Now you've made a profit of $500, minus trading fee and funding fee that you'll have to pay XREX for borrowing the ETH.
Conversely, if the market were to move in the opposite direction (a 35% ↑ increase in value) you would be at loss and face the risk of liquidation. In other words, a (%) move in the market, in either direction, is translated into ($) ETH gain or loss.
Tip: Learn more about how your short position can change depending on different scenarios, such as price drop, decreasing collateral, price rise, and increasing collateral by checking out Exemplified variables for Margin Short displayed on the XREX app interface.
Fees, limits, and funding rate
Fees, limits, and funding rate
Trading fees
Like spot trading, trading fees will occur and deduct the amount users trade. However, with short trading, please note that fees will charged doubled when you open the position and free when you close the trade.
Personal position limits
Basic account: 300,000 USDT
Premium account: 500,000 USDT
Hourly funding rate
When a short position has been opened, funding fees will accrue as you are now borrowing from XREX to sell short.
The rate of the funding fee is calculated by the borrowed asset type and the current value, and will be charged hourly at the time of borrowing.
If you have borrowed for less than 1 hour, the funding rate will still be calculated as if the asset were borrowed for 1 hour.
Funding rate for coins and tokens
BTC - 5%
ETH - 5%
SOL - 15%
XRP - 10%
BNB - 10%
GMT - 15%
Other frequently asked questions
Other frequently asked questions
How does collateral work in short selling?
Collateral is the investment principal you pledge to open and maintain a short position. Whether you are margin trading Ethereum, BitCoin, or another supported cryptocurrency, the framework is the same. You select a trading pair quoted in USDT and pledge it as your collateral.
Collateral is pledged directly from the spot wallet, which makes the process of opening and adjusting a position a lot simpler and more user friendly.
Collateral is subjected to USDT pairs.
What are the rules for decreasing collateral?
The act of decreasing collateral is essentially a withdrawal from the total value of assets in the position.
You can only decrease the collateral to the point where the margin level is equal or higher than the initial ratio of 200%
You cannot decrease the collateral when the margin level is less than the initial ratio of 200%, because the position is not profitable.
What are the rules for increasing collateral?
You can provide more collateral to the position at any time, up until the point where the system has executed the liquidation process.
You pledge your collateral directly from the spot wallet.
How does the size of collateral affect liquidation?
When the collateral of your position does not uphold a sufficient margin and the margin level falls to around 120%, the system will execute the liquidation process in accordance with the liquidation price.
When you increase or decrease the collateral, values such as the margin level, liquidation price, and P&L is affected.
Increasing the collateral will increase the liquidation price.
Decreasing the collateral will decrease the liquidation price.
When liquidation happens, it will cause a loss of the collateral, depending on the buyback price.
If the market price is highly volatile when the liquidation happens, the loss may be all of the collateral.
When should I close my position?
If the margin level is satisfactory, you can close the position to take profit.
If the margin level is trending downwards, you can close the position to prevent further losses.
How do I avoid liquidation?
Ultimately, you can not avoid liquidation if the margin level falls to around 120%, however, if you:
Pay close attention to the market and monitor your positions, potentially bigger losses can be avoided by exiting a trade timely.
By providing more collateral, you can improve the margin level and increase the liquidation price.
How does isolated margin work along liquidation?
When a short position is liquidated under isolated margin management, your entire holding is not at risk, because each position is independent of each other and the rest of your account balance.
The net asset in each isolated margin account is used as a margin for the trading pair being shorted.
If you open multiple short positions under the same trading pair, they would be combined into one position and ultimately be liquidated all together.
Risk disclosure
Risk disclosure
Risk disclosure of cryptocurrency shorting transaction:
Cryptocurrency shorting trading ( “short trading”) has combined the new transaction natures of collateral assets and loan fundings. You may sustain a significant or total loss when the crypto market fluctuates. You should consider your own risk appetite, financial capacity, and situation when deciding whether you are suitable for engaging in short trading. Before you decide to conduct any short trading, you should understand the following and assume the risk thereof:
Short trading is designed for experienced users, such as traders who adopt proactive or diverse strategies. When engaging in short trading, you should be highly cautious, and only engage in such transactions when you clearly understand the mechanism of short trading and you can assume the related risk from such transactions, including but not limited to, forced liquidation of collateral assets, funding fees and rates, and volatility of the market price, etc.
Unless specified otherwise, short trading at XREX is conducted by the isolated margin. Each short trading transaction (and its margin) is independent of another.
When you initiate a short trading transaction, you agree to borrow the underlying cryptocurrencies to sell. Therefore, you accept that the funding rate is hourly-based and agree to pay the funding fee of the loan when you close your margin or upon the closing of the margin. Please note that the funding rate is variable and we have the sole discretion to adjust such rate. You can find more information on the funding rate here.
When the market goes against your short trading position, we may inform you of upcoming liquidation so that you can maintain your margin level. Please note that you may lose up to all your collateral assets when the market fluctuates and you may be liable for any deficiency when your loss is more than your collateral assets. Furthermore, you understand and agree that even if you initiate a deposit to increase your collateral asset before the deadline, your position may still be liquidated if such a deposit is not completed in time.
In addition to the price of your targeted assets for short trading, the price of your collateral assets may drop so that you have to increase your collateral assets to avoid liquidation. Such fluctuation may cause more loss than your expectation.
Your short position(s) may be forced to liquidate due to the volatility of the short trading market. Please read our information on forced liquidation here.
To comply with government regulations, XREX Information Security Policy, and Anti-Money Laundering (AML) Policy, it is possible that your transaction might be halted or terminated under exceptional or unexpected circumstances. It may also affect your ability to perform contracts or lead to forced liquidation.
If you engage in short trading and spot trading at the same time, you should understand there may be a gap in the settlement. And thus, you are responsible for the consequences if you fail to meet the margin call in time.
The Risk Disclosure and the General Terms of Conditions are intended to be enumerative only, not exhaustive. Thus, these documents do not cover all risks. You should conduct your own risk assessment to avoid unbearable loss.