This is an explanation of margin trading, a type of trading that can be engaged in through Zaif Exchange.
Margin trading on Zaif Exchange
Margin trading on Zaif Exchange refers to transactions in which a customer borrows virtual currencies prescribed by us and then returns those borrowed virtual currencies after a certain period of time.
In order to borrow virtual currencies, a customer is required to deposit a margin in line with the price of the virtual currencies to be borrowed, and the amount of the margin that needs to be deposited is calculated when a margin trading order is made. Any borrowing fees incurred until the time in which liquidation of the margin trade is complete are deducted from the deposited margin and adjustments are made by repaying the amount of money that reflects the profit or loss arising from the relevant margin trade.
Furthermore, borrowing fees are incurred when borrowing virtual currencies and the borrower must pay the fees incurred for each day of the borrowing period.
Customers may only use borrowed virtual currencies to trade on Zaif Exchange and may not send such virtual currencies to external parties or transfer them to another user of Zaif Exchange.
On Zaif Exchange, customers may borrow virtual currencies at the same time as making a margin trading order; however, in this case, those borrowings will be executed and borrowing fees will be incurred irrespective of whether the trades pertaining to the relevant margin trading order are consummated.
In margin trading of Zaif Exchange, transaction fee conforms to spot exchange rate of each cryptocurrency.
Furthermore, negative fees (i.e., trading bonuses) do not apply to open positions or liquidation orders in margin trading.
Negative fees (i.e., trading bonuses) do apply to ordinary orders that are made directly against margin trading orders.
In margin trading on Zaif Exchange, borrowing fees prescribed by us are incurred on the price of the borrowed virtual currencies at the time the currencies are borrowed.
The incurred borrowing fees are deducted from the margin deposited by the customer when the margin trading order is liquidated and adjustments are made by repaying the amount of money that reflects the profit or loss arising from the relevant margin trade.
Leverage and margin
The amount of margin that needs to be deposited per one unit of borrowed virtual currency fluctuates depending on the trading conditions of virtual currencies, and an amount in line with the order quantity and the leverage ratio is required.
In accordance with our prescribed methods, the margin is, in principle, taken from the customer’s account balance in Japanese yen. However, if the customer’s account balance in Japanese yen at the time a margin trading order is made is not sufficient to cover the amount of the margin prescribed by us but a virtual currency (BTC, XEM, or MONA) can be used to deposit the amount equivalent to the shortfall of the margin, then an amount of BTC, XEM, or MONA equivalent to the shortfall will be automatically deposited as the margin, calculated in accordance with our prescribed exchange rate.
Furthermore, the leverage ratios that can be used may change based on campaigns or the market situation.
If the maintenance margin rate falls below 30%, this will trigger a Loss-cut, positions will be forcibly liquidated, and borrowings will be automatically cancelled.
The maintenance margin rate is calculated using the following formula:
(Deposited margin ± unrealized profit or loss (marginal profit or marginal loss and incurred borrowing fees)) ÷ deposited margin × 100(%)
Call for additional margin collateral
If at the time of liquidating a position there arises a loss that is greater than the amount of the deposited margin, due to factors such as sudden fluctuations in the market price, an amount of money to cover the shortfall may be collected from the customer’s account. If the balance in Japanese yen of the customer’s account goes into negative, that customer will be unable to engage in any kind of virtual currency trades on Zaif Exchange (except for selling of virtual currencies that that customer holds) or transfer any of his or her retained virtual currencies to another customer’s account or to an external wallet, until the Customer deposits more money into his or her account to cover the shortfall.
A customer is never asked to provide additional margin collateral (a so-called margin call) if his or her account balance goes into negative.
Commission on profit made from leveraged trades
If in the course of margin trading on Zaif Exchange a customer engages in a margin trade at a leverage ratio of 2:1 or greater and at the time of liquidation the customer makes a profit, commission of an amount equivalent to 0.7% of the profit amount will be charged on that profit.
However, commission is not charged on profits made from trades at a leverage ratio of 1:1.
When liquidating an open position arising from a margin trade, the difference between the liquidation price and the price determined at the time of purchase or sale is the profit or loss; however, neither the principal margin nor any profit is guaranteed, and if the liquidation price fluctuates in the direction that disadvantages the customer (i.e., the price drops against a long margin position or the price increases against a short margin position), then the customer may incur a loss.
Leveraging in margin trading carries a high risk. The higher the leverage ratio is, the greater a trade can be in comparison with the amount of funds actually invested (including the amount of the margin deposited) and therefore, while you can potentially expect great profit, it can also result in a great loss if the market price differs to what was predicted.
Profits or losses are not confirmed until a liquidation order is made; however, forced liquidation could possibly be executed in accordance with the Loss-cut rule described above.
Furthermore, note that even in cases where a Loss-cut has been triggered, the liquidation price is influenced by market conditions; therefore, it means that there is no guarantee that 30% of the margin will remain, and there is the possibility of a customer incurring a loss that exceeds the maintenance margin rate of the margin he or she has deposited.
As stop-loss orders are also influenced by market conditions at the time, similar to a Loss-cut, it means that liquidation of stop-loss orders won’t necessarily be at the price that was set.
In margin trading, an opposing trade for a customer’s open position can be made difficult by market trends, trading volumes, and the like, and there is the possibility of a greater loss.
Please refer to the [“Explanation on important matters” section of the document “Explanations on Our Services”] for other risks associated with trading of handled virtual currencies.