Leverage

Liquid offers 2x, 4x, 5x, 10x, and 25x.

Example: Your total balance is $50. You are willing to put $10 into a margin trade at 10x leverage. Therefore, you can borrow $100.

On Liquid, this $100 will also be the size of your margin trade.

Lender & Borrower

The lending pool is created by lenders who put aside a part or all of their balance on the platform to issue loans to margin traders. Borrowers are margin traders.

Interest Rate & Interest

Interest rate is the rate of the loan you take from the lender to finance your margin trade. On Liquid, this rate is daily. Interest is what you have to pay daily, calculated from this rate.

Example: Your total balance is $50. You put $10 into a margin trade at 10x leverage and borrow $100. Interest rate of this $100 loan is 0.5% (daily). 

Every day, you have to pay the lender $100 * 0.5% = $0.5.

On Liquid, a margin trader pays an “opening interest” at the moment the trade is started, and a “daily interest” at ~2200 UTC daily for as long as the trade is kept open. Both interests have one same rate which is decided by the lender.

Open Price & Close Price

Remember what we said about margin trading: A margin trade is basically a trade made with borrowed money, on which way a product price will move and how much it will move. One margin trade involves two orders.

Example: Your total balance is $50. You put $10 into a margin trade at 10x leverage and borrow $100.

Action 1: using $100 borrowed from lender, buy 1 BTC at price A.

Action 2: sell 1 BTC at price B, return $100 to lender. Trade closes.

Price A is called open price. Price B is called close price.

Profit & Loss

Profit & Loss - P&L or PNL, is what you make from your margin trade and is calculated as below: 

(Open Price - Close Price ) * Size ( Quantity )

Example: Your total balance is $50. You put $10 into a margin trade at 10x leverage and borrow $100.

Action 1: using $100 borrowed from a lender, buy 1 BTC at price A.

Action 2: sell 1 BTC at price B, return $100 to lender. Trade closes.

In this example, you will:

  • Make a profit, if Price A < Price B
  • Make a loss, if Price A > Price B

Take-Profit & Stop-Loss

Take profit limits are normally associated with margin open positions. As their name indicates, they are used to close an open position and to “take profit” on a profitable position when the price is moving in a favourable direction to the open position (up for longs and down for shorts). Currently, Liquid implements TP using market orders via the Order Matching System (OMS).

The OMS sends market orders to the matching engine once the profit target price is reached. If the position is long, the system would use a market sell order to effectively close the position. This is a bit cumbersome and can be confusing for users, as sometimes their positions may not be closed (as orders are not filled or only partially filled) even if the price crosses the target price. This could be due to liquidity or sudden price spike or both.

Similar to take profit, stop-loss limits are usually associated with open positions and act upon them when the price indicated by the user is reached. As their name indicates, SL limits are designed to allow the trader to stop or cap their losses when the market moves against their position. They are implemented using market orders. Upon detecting the price has reached the “loss cut” price, the OMS sends a market order to the matching engine and proceeds to use that order to effectively close the position.

Margin Call & Forced Liquidation

Margin call, as its name implies, is a “call” from system alerting that your free margin is getting too low.

When free margin reaches margin maintenance % the open margin trade will be liquidated by force (“force-closed” by the system) in order to decrease used margin and increase free margin past the 2% threshold. The system will keep closing trades until this condition is satisfied.

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One-Direction, Two-Direction, Net-Out

One-Direction: newly opened position has to be in the same direction (buy or sell) as currently open position

Two-Direction: newly opened position does not have to be in the same direction (buy or sell) as currently open position

Net-Out: newly opened position cancels out currently open position. For example, one long position for 3 BTC and one short position for 2 BTC opened after in Net-Out mode will result in one long position for 1 BTC.

Multi-currency trading

Multi-currency trading applies when your funding currency is not the same as the quote currency of the product/trading pair you want to trade, and available in margin trading mode only.

In a multi-currency trade, margin, free margin, and daily interest will be calculated in the quote currency of the product, then exchanged to the funding currency and deducted from this account only. An FX will take place.

Cross Margin Liquidation Process 

The key difference between isolated margin and cross margin is that cross margin takes into account available balance when calculating margin coverage and other parameters. Liquidation for cross margin happens when Margin coverage reach 100%.

Margin Coverage = ( Free Balance + P&L) / Margin Maintenance x 100

Initial Required Margin (IRM) is the minimum required margin you set aside to open the position.

IRM Value = Open Price * Position Size * (1 / Leverage)

Example :

A trader opens a cross margin position with an order value of 8,000 USD with the position size of 2 BTC. The user selects a leverage level of 4x. In this case, the user will need to post an IRM of 4,000 USD to create the order.

Margin Maintenance (MM) is the minimum margin required to maintain the position open.

MM = Order Value * p  
Where p is the default percentage

Default maintenance margin percentages will be as follows:

For margin trading, p =  2%

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