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Derivatives OKX Trading

How OKX revolutionizes margin calculation with new Unified Account system

2021.01.13

A new crypto-trading tool for a new crypto paradigm

OKX is committed to the principle that users come first. This is why we are breaking through existing technical bottlenecks and improving our calculation model in an effort to bring users an innovative new trading system — Unified Accounts. 

Unified Accounts are not simply a combination of various trading accounts under one account. Rather, they are a huge improvement in the flexibility of cross-currency trading, as well as the scale of tradable positions. It is a highly original product and a significant technological advancement in the cryptocurrency industry.

OKX’s Unified Account advantages

As we all know, traditional trading accounts have a large number of pain points — such as barriers between different products, inconveniences when transferring funds, the inability to conduct cross-currency margin trading, low capital utilization, etc.

The biggest innovation from Unified Accounts is that they allow users to trade various products — such as spot, options and futures — in one account. 

OKX’s Unified Account system is divided into three modes: 

  • Simple trading mode
  • Single-currency margin mode
  • Multi-currency margin mode

Each of these modes meets the trading needs of different users.

Novice users may choose the simple trading mode, which does not support leverage trading. As such, it isolates the risk for new users and makes it easy to trade spot and purchase options. For example, an investor may hold spot and buy put options at the same time, in an effort to build a defensive portfolio. When the spot price falls, the put options can hedge the loss.

Users with some trading experience may choose the single-currency margin mode. In this mode, users may trade different derivatives of the same currency in one account. For example, for investors who want to hold BTC options and futures contracts at the same time, they only need to have the corresponding BTC in the single-currency margin account to trade options and futures contracts in BTC. It is no longer necessary to deposit BTC into two separate accounts.

Moreover, in the old OKX trading system, let’s suppose a user has a balance of 3 BTC in their perpetual swap account as well as 1 BTC in their futures account. In addition, let’s say the user has a long position in the BTC coin-margined perpetual swap with an initial margin of 1 BTC, which has an unrealized gain of 2 BTC. 

If the BTC market price is $10,000 and the user wants to go long on the quarterly coin-margined future with 10x leverage, the maximum number of contracts that could be opened under the old trading system would be 1,000 contracts. 

Since the profit and loss between different categories of accounts could not be offset, if the price suddenly drops, the loss in the futures account could not be offset by the profit in the perpetual swap account. This exposed loss-making accounts to greater risks of liquidation. 

Under a Unified Account, the profit and loss of each account — and even positions in different settlement currencies — can be offset, and the margin is shared. Thus, it greatly reduces the risk of the position being liquidated. 

Notes
Trading requirementsA user wants to go long on the coin-margined BTCUSD quarterly future with 10x leverage.
Price When the market price of BTC is $10,000.
Under old trading systemThe maximum number of contracts that can be opened long is 1,000 contracts. 
Initial Margin * Leverage * Mark Price / Face Value per contract = 1 BTC * 10x * $10,000 / $100 = 1,000 Contracts
Under Unified AccountIf the user chooses the single-currency margin mode, the user’s account balance would be 4 BTC (3 BTC + 1 BTC). In addition, there would be 2 BTC in unrealized perpetual swap profits. 
The effective margin under the BTC currency account is 5 BTC.BTC currency asset balance + gain/loss – margin = 4 BTC + 2 BTC – 1 BTC = 5 BTC
The maximum number of contracts that can be opened is 5,000 contracts. Initial Margin * Leverage * Mark Price / Face Value per contract = 5 BTC * 10x * $10,000 / $100 = 5,000 Contracts 
ConclusionThe user’s capital utilization rate is increased by 5 times.

Advanced users may use the multi-currency margin mode. Compared to the single-currency margin mode, all assets in a user’s account can be used as collateral, and the system converts the total value of an account’s assets into a USD value based on its Discount Rate. The system then derives the margin ratio based on the total USD value, thus enabling cross-currency margin sharing. The dollar denomination allows all assets in an investor’s account to be counted as margin. This can maximize the safety of a user’s leveraged positions. 

Under both the single-currency margin and cross-currency mode, the profit and loss of different products may be offset against each other to achieve margin sharing. It largely helps to improve users’ capital utilization and eliminates the need to transfer funds between multiple accounts — reducing the complexity of operations for users.

Under the multi-currency margin mode, non-borrow and auto-borrow are set for users to toggle. In the non-borrow mode, users may only construct derivative positions corresponding to assets already held. For example, a user holding BTC and ETH can only trade and hold derivatives on products of BTC and ETH, but cannot trade on derivatives settled in other currencies.

In non-borrow mode, users may continue to hold positions when the margin ratio in a product is below the maintenance margin if the overall dollar value of the account is positive. The unrealized loss generated by the derivatives positions will enjoy an interest-free limit. If the amount of debt in the currency exceeds the interest-free limit, the system will automatically swap some assets to repay the debt. 

In auto-borrow mode, the Unified Account will provide users with a liability limit, based on the active margin in the account. For example, if a user holds BTC, they can trade and hold ETH spot and XRP derivatives. This further enhances the ease of trading. 

However, when the liabilities caused by the unrealized loss of positions exceed the interest-free limit, interest will automatically begin to accrue. Under normal circumstances, the system will not trigger forced repayment — but when the total liability reaches the liability limit, the system will trigger forced repayment. Positions with the largest liability will be forced to repay the liability first.

The Unified Account also enables real-time settlement for derivatives trading — allowing users to withdraw profits after closing their positions, without having to wait for the daily 8:00 am UTC settlement. This greatly enhances capital utilization.

OKX’s Unified Accounts are industry-leading

While other major cryptocurrency exchanges have recognized the benefits of cross margining, they usually solve the demand by providing off-the-book credit lines or collateralized loans — mostly due to the complexities of risk management and technical challenges. OKX is one of the first major cryptocurrency exchanges to afford professional traders the ability to enjoy the same portfolio margin benefits as top-tier clients in the traditional finance world. 

In terms of the types of currencies that can be borrowed, OKX supports all corresponding currencies on the exchange. Binance, by comparison, only supports BUSD, BTC and ETH as collateral for borrowing USDT. Meanwhile, FTX only supports borrowing in USD. Additionally, Binance requires that users put collateral upfront to determine the amount of loanable assets. 

OKX Unified Accounts support margin sharing among spot trading, leveraged trading, futures trading, perpetual swaps and options. FTX only supports the same feature under USD-denominated futures and swaps. Binance only supports assets as collateral to borrow USDT as margin to participate in futures trading. Additionally, FTX only uses cross leveraging by default — meaning, if opening an isolated-margin position, users must create a sub-account and allocate certain collateral at the start. OKX has a clear advantage in capital efficiency and the variety of instruments that can be shared on margin. 

Examples between cryptocurrency exchanges

Spot trading

Notes
Trading requirementsA user has 100 USDT and 20,000 UNI, and wants to buy 100 LTC with USDT.
Price The price of UNI is 3 USDT.The price of LTC is 100 USDT.
Trading on OKXUnder the cross-currency automatic borrowing mode, a user can pay 10,000 USDT to buy 100 LTC directly via the LTC/USDT pair, which incurs a 9,900 USDT liability. (The 9,900 USDT liability is within the interest-free borrowing limit, so no interest would be paid.)
Trading on Binance/FTXThe user would sell 3,300 UNI to 9,900 USDT and then buy 100 LTC with 10,000 USDT, which incurs two transaction fees. 

Conclusion
OKX provides a more efficient solution with fewer transaction fees.

Derivatives trading

Notes
Trading requirementsA user has 20 ETH and wants to long BTC perpetual swaps with 2x leverage. 
Price At the moment of the position’s opening, the price of BTC is 20,000 USDT and the price of ETH is 500 USDT. 
At T1 moment, the price of BTC is 20,000 USDT and the price of ETH is 300 USDT. 
Trading on OKXUnder the cross-currency automatic borrowing mode, 20 ETH as assets may provide $10,000 collateral, since the weight ratio of ETH equals 100% on OKX. Therefore, the user can open a $20,000 perpetual swap position with 2x leverage. 
At T1 moment, the value of 20 ETH as collateral decreased to 6,000 USD. The maintenance margin ratio (MMR) is down to 30% (6,000/20,000), but it is still well above the minimum requirement of 0.5%. 
Trading on BinanceUnder the cross-margin mode, the user needs to deposit 20 ETH as collateral to borrow 5,500 USDT, since the loan-to-value ratio of ETH is 55% on Binance. Therefore, the user may only open a $11,000 perpetual swap position with 2x leverage. 
At T1 moment, the LTV ratio is down to 91% (5,500/20/300), which is above the exchange’s 85% liquidation call. Thus, the 20 ETH as collateral will be liquidated
Trading onFTX20 ETH assets are worth $9,000 as collateral, since its weight ratio is set to 90% on FTX. Therefore, the user can open a $18,000 perpetual swap position with 2x leverage. 
At T1 moment, the margin ratio is down to 30% (20*300*90%/18,000), but it is still above the 3% minimum maintenance margin requirement. 
ConclusionOKX’s capital efficiency and fund safety are superior to the competition.

Implementing trading strategies through multiple instruments

Notes
Trading requirementsHolding 0.5025 BTC and 10,000 USDT, a user wants to implement an arbitrage strategy by longing the BTC USDT-margined quarterly contract with 2x leverage and shorting the BTC coin-margined perpetual swap with 2x leverage. 
The user, therefore, holds a BTC long position of 20,000 USDT under the BTC quarterly contract and a short position of $20,000, or 1.005 BTC, under the perpetual swap. 
Price At the moment of the position’s opening, the price of the BTC quarterly contract is 20,000 USDT and the price of BTC perpetual swap is 19,900 USD. 
At T2 moment, the price of the BTC quarterly contract is 9,000 USDT and the price of the BTC perpetual swap is $8,500. 
Trading on OKXAt T2 moment, the unrealized loss of the BTC quarterly contract is 11,000 USDT.Face Value*Number of Contracts*Contract Multiplier*(Mark Price-Open Price) = $0.01*100*1*(9,000 USDT-20,000 USDT)=-11,000 USDT
The unrealized gain of the BTC perpetual swap is 1.3479 BTC, or $11,457. Face Value*Number of Contracts*Contract Multiplier*(1/Mark Price-1/Open Price) = $100*200*(1/$8,500-1/$19,900)=1.3479 BTC
Since the profit and loss can be offset, there is no risk of being liquidated in any of the positions, and this arbitrage strategy could make a profit of $457. 
Trading on BinanceAt T2 moment, the BTC quarterly contract on Binance would incur a loss of 11,000 USDT and get liquidated. The arbitrage strategy failed. 
Trading onFTXFTX does not provide a coin-margined BTC contract to implement the above strategy. 
ConclusionOKX provides safer arbitrage opportunities and more possible strategies.


Follow OKX

Twitter: https://twitter.com/OKX
Facebook: https://www.facebook.com/okexofficial/
LinkedIn: https://www.linkedin.com/company/okex/
Medium: https://medium.com/@OKX
Telegram group (English): https://t.me/OKXOfficial_English

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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