Leverage Trading Explainer

Overview

Leverage trading allows users to borrow money from other users (lenders) on CoinUnited who are wanting to earn yield on their assets in order to trade with leverage and go short on spot markets.

Lenders set the rates, which are paid hourly. Lenders can call back their loans at any moment and get their money back in one hour.

Similar to futures, Leverage positions are governed by liquidation rules and collateral requirements.

To view the current and previous loan rates, visit https://coinunited.io/funding

How do you enable Leverage trading?

Visit https://coinunited.io/account, choose "Enable Leverage Trading" under the Margin section to turn Leverage on. If Leverage is enabled, any short positions of spot assets in your account will be attempted to be borrowed.

Please note that if you have Leverage enabled, your account will automatically borrow the negative USD amount from the Leverage market and pay the current USD borrow rate rather than selling your non-USD collateral whenever your USD balance falls below specific thresholds.

What assets are available for borrowing?

The list is available on the borrow pages. The majority of spot assets that are depositable and withdrawable on CoinUnited can be borrowed, but not all of them.

Borrowing

How CoinUnited automates borrowing

Implementing margin trading and borrowing could be executed in a variety of approaches. CoinUnited users have full control over their borrowings. To request borrows, receive them, transfer the money, open/close positions, etc., there is no need for distinct operations; the entire process is abstracted away into net balances.

You can borrow spot assets by simply spending more than the amount of your account, given you have enough margin.

Let's imagine you have nothing else in your account but $100,000 (USDT). Your balances would be +140,000 USDT and -2 BTC if you sold 2 BTC for $40,000 in the spot BTC/USDT orderbook. You have to borrow the BTC for short selling since you do not have it. When you sell, CoinUnited does this automatically by placing an order to borrow 2 BTC from the funding book on your behalf.

Even with withdrawals, you can accomplish this! You can demand to withdraw 3 ETH even though you have no ETH in your account if your account only contains 5 BTC. You can withdraw the 3 ETH that CoinUnited automatically requests for you to borrow. But keep in mind that you may only borrow to withdraw for amounts that are smaller than or equal to those that are accessible and unclaimed in the borrow-lending book!

Therefore, managing collateral, margin positions, withdrawable tokens, margin trading, and spot trading are not necessary. As long as your account has enough total collateral to back the necessary borrowing, the same instructions (buy/sell/deposit/withdraw) function normally.

Leverage Trading

You do not need to keep track of a separate Leverage need since your Leverage holdings are cross-margined with your positions.

Each contract has a margin requirement (an initial margin fraction to open a position and a maintenance margin fraction to avoid liquidation), and you need a total collateral value that fulfills those thresholds of margin.

Similar to Leverage. The notional amount of any short (negative) balances you hold determines the position size of a Leverage position. Therefore, the size of your Leverage position is $50,000 (2 BTC * $25,000 per BTC) if you have + $70,000 and -2 BTC given BTC is trading at $25,000. This is regarded the same as if you were holding a $50,000 position, and you must increase your initial margin and maintain it to prevent liquidation.

Formulas

Term	Formula
Max account leverage	Max account leverage available for Leverage positions is 5x.
Leverage IMF The minimum margin fraction required to open a Leverage position, applicable to positions of all sizes.	= min((1 + 1 / account leverage) / total weight - 1, 100%)
Leverage MMF The margin fraction in which our account would start getting liquidated.	5%
Spot Collateral Value	If token quantity is positive Token quantity * token mark price * collateral weight If token quantity is negative Token quantity * token mark price
Borrow Rate Net fee for borrowing assets, applied to the borrowed size.	Borrow rate can be checked here
Total Weight	See values here.
Additional collateral used	Position notional * Leverage IMF
Max amount you can borrow	Collateral / Leverage IMF / Mark Price
Max borrowed amount you can withdraw	Collateral / (1 + Leverage IMF)

 

Examples

Assume that:

• You have $30,000 USDT in collateral and nothing else
• Your account’s max account leverage is set to 5x

Throughout this whole section, we will be opening and using the following positions:

	BTC/USDT	DOGE/USDT
Direction	Buy	Sell
Size	2	20,000
Price	$20,000	$0.1
Total Position Notional	$40,000	$2,000
Total Weight	0.975	0.95
Initial Margin Fraction (IMF)	0.2308	0.2632

 

Calculating Initial Margin Fraction (IMF)

The initial margin fraction required to open your BTC position:

= min((1 + 1 / 5) / 0.975 - 1, 100%)

= 23.08%

The initial margin fraction required to open your DOGE position:

= min((1 + 1 / 5) / 0.95 - 1, 100%)

= 26.32%

 

Calculating Maintenance Margin Fraction (MMF)

Your Leverage MMF will be 5% for both BTC and DOGE positions.

Be aware that risk management on CoinUnited executes at the account level rather than the position level. The margin percentage at which your account would be liquidated is determined by the weighted average MMF of all of your holdings.

The MMF on your account may change according to the state of the market.

Please check our account margin FAQ for more information.

 

Calculating Borrow Rate

Assume that the current Leverage for DOGE is at 2.3% / year. The Borrow Rate formula uses hourly rates, so to convert the yearly rate to hourly we simply do the following:

= 2.3% / 365 / 24

= 0.000263%

Interest is paid every hour in the currency you’re borrowing. In this case, you’d be paying 0.0526 DOGE every hour to maintain your 20,000 DOGE borrowed.

Note about fees

The borrow rates displayed on the borrows page are the actual rates you’d be paying for that hour.

Also, if funds are borrowed and withdrawn from the account, the expected borrow rate for the next hour will be applied to the withdrawn funds.

 

Collateral Overview

How negative spot balances decrease your account’s collateral value

With your BTC/USDT Leverage long, you borrowed $10,000 USDT in order to buy 2 BTC. This means that, just like a normal spot trade, the 2 BTC will show up as a positive balance in your account. However, because you used margin to borrow the 10,000 USDT, the $10,000 will show up as -$10,000 in your account balance.

Similarly, with your DOGE/USDT short, you borrowed 20,000 DOGE (which will show up as -20,000 DOGE in your balance) and sold it for $2,000 USDT (which will be added to your balance).

Now, using the formula below, let’s see how your total account collateral looks:

If token quantity is positive

Token quantity * token mark price * collateral weight

If token quantity is negative

Token quantity * token mark price

Current Collateral Overview
Asset	Size	Mark Price	Collateral Weight	IMF	Collateral	Additional collateral used
USDT	-8,000	$1	0.99	0.2121	-$8,000	$1,697
BTC	2	$20,000	0.975	0.2308	$39,000	-
DOGE	-20,000	$0.1	0.95	0.2632	-$2,000	$526

Calculating how much collateral is being used by your Leverage positions

Derivatives and Leverage positions require collateral. To know how much collateral each of your positions is using, use this formula:

= position notional * Leverage IMF

For your DOGE borrowed position:

= $2,000 * 26.32%

= $526

For your USDT borrowed position:

= $8,000 * 0.2121

= $1,697

 

Total Positive Collateral	$39,000
Total Negative Collateral Used	$10,000
Total Additional Collateral Used	$2,223
Free Collateral	$26,777

Risk

Please be aware of liquidation risk of using Leverage since CoinUnited's risk engine will attempt to liquidate any customers before they reach a negative net account balance. CoinUnited and its backstop fund will generally make an effort to shield other users from the possibility of other accounts going bankrupt.

For more information, visit our liquidations page.

Disclaimers:

• Trading on CoinUnitedis not available in the United States or other prohibited jurisdictions. If you are located in, incorporated or otherwise established in, or a resident of the United States of America, you are not permitted to trade on CoinUnited.
• CoinUnitedretains the final right to interpretation of its rules and conditions on these and all contracts.
• CoinUnitedretains the final right to modify terms of its rules and conditions on these and all contracts.
• Much of this article is an approximation and ignores details, e.g. fees.
• When in doubt, feel free to contact us for clarifications.
• This post outlines the basics of the CoinUnitedLeverage system.  It is not the only relevant resource, and may be overridden by other sources.  Eligible parties may be asked to sign other documents in some cases, including but not limited to the CoinUnitedInstitutional Customer Margin and Line of Credit Agreement.
• There are risk factors associated with margin trading, chiefly liquidation risk.  Please decide whether margin trading is right for you.
• As the terms of service make clear, manipulative behavior is not tolerated on CoinUnited.  Any attempts to do so may result in account termination at CoinUnited’s
• sole discretion.