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Derivatives OKEx Trading

How OKEx revolutionizes margin calculation with new Unified Account system

2021.01.13 OKEx

A new crypto-trading tool for a new crypto paradigm

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

OKEx'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 and allows for trading with different levels of risk. The aim is for users to easily customize their trading experience, depending on the type of instruments they're looking to trade and risk they're willing to take on.

Three account modes under OKEx's new Unified Account system

Novice users can 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 on spot markets and purchase options. Users with some trading experience may choose the Single-currency margin mode, while advanced users can use the Multi-currency margin mode.

In addition to simplifying trading accounts and supporting margin-sharing, the Unified Account system 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 new feature greatly enhances capital utilization.

Unified Accounts, explained

It should be emphasized that the Unified Account is not simply a combination of various trading accounts under one main account. Rather, it is a huge improvement in the flexibility of cross-currency trading, as well as the scale of tradable positions.

Due to technical limitations and complex calculations, the accounts of different product lines on the OKEx trading platform were previously independent, and there were six major categories of accounts: funding accounts, spot accounts, futures accounts, margin accounts, perpetual swap accounts and options accounts. Since the margins for each account type could not be shared, capital utilization rate was low. 

With the new Unified Account system, OKEx now supports all types of trading in one account — eliminating the need to transfer funds between multiple accounts and reducing the complexity of operations for users.

The Single-currency margin mode places trading activities in the same settlement currency within a single account; the Multi-currency margin mode converts assets in different currencies into a USD value, and all types of spot and derivative trading in all currencies are placed under this account. 

Breaking down margin calculation

To better understand how the Unified Accounts feature on OKEx can make for more efficient trading and capital utilization, let's break down a specific example. Looking at the legacy OKEx trading system, lets say a user has a balance of 3 BTC in their perpetual swap account and holds a long position in a BTC coin-margined perpetual swap with an initial margin of 1 BTC and an unrealized gain of 2 BTC; at the same time, the user has an asset balance of 1 BTC in their spot account. Here's a breakdown of the user's next steps and a comparison of their resulting capital utilization using the legacy trading system and the new Unified Account system on OKEx:

Notes
Trading requirementsA user wants to go long on the coin-margined BTCUSD quarterly future with 10x leverage.
Price When the marker price of BTC is $10,000.
With OKEx legacy trading systemThe maximum number of contracts that could 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
With OKEx's new Unified Account systemIf the user chooses the Single-currency margin mode, the user's account balance would be 4 BTC (3 BTC + 1 BTC). Meanwhile, 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 
ConclusionWith the Unified Account system, a user's capital utilization rate increases by 5x

Furthermore, under the legacy trading system, profit and loss between different categories of accounts cannot be offset. For example, the loss in a user's leveraged account cannot be offset by the profit in their perpetual swap account. This exposes loss-making accounts to greater risks of liquidation.

Under the new Unified Account system on OKEx, the profit and loss of each account — and even positions in different settlement currencies — can be offset, and the margin is shared. These features greatly reduce the risk of a position being liquidated. 

Finally, under the Multi-currency margin mode with the automatic borrowing function, when there is sufficient margin in USD value, users can trade derivatives with insufficient balances in that currency. For example, if a user has $500 in excess margin, he or she can open a position in a coin-margined BTC contract without first purchasing BTC. This further enhances the ease of trading. 

Competitive advantages of Unified Accounts

While other major cryptocurrency exchanges have recognized the benefits of cross-margining, they usually solve the demand for this feature by providing off-the-book credit lines or collateralized loans — mostly due to the complexity of risk management and technical challenges for the exchange.

OKEx is one of the very first major cryptocurrency exchanges to afford professional traders the ability to enjoy the same portfolio margin benefits as they would with prime brokers. OKEx allows margin offset for opposite positions, which is usually offered exclusively to top-tier clients in the traditional finance world. 

To better understand the advantages of trading via the Unified Account on OKEx, we took a look at similar trading features on two major competitor exchanges — Binance and FTX. OKEx has a clear advantage in capital efficiency and the variety of instruments that can be shared on margin. 

In terms of the types of currencies that can be borrowed, OKEx supports all corresponding currencies on the exchange. Binance, on the other hand, 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 up front to determine the amount of loanable assets. 

OKEx's Unified Accounts support margin sharing among spot trading, leveraged trading, futures trading, perpetual swaps and options. On the other hand, FTX only supports the same feature under USD-denominated futures and swaps, while 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, when opening an isolated-margin position, users must create a sub-account and allocate certain collateral at the start.

Comparing across 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, and the price of LTC is 100 USDT.
Trading on OKExUnder the Multi-currency automatic borrowing mode within Unified Accounts, 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
OKEx 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 a particular moment (T1), the price of BTC is 20,000 USDT, and the price of ETH is 300 USDT. 
Trading on OKExUnder the Multi-currency automatic borrowing mode, 20 ETH as assets may provide 10,000 USD collateral, since the weight ratio of ETH equals 100% on OKEx. Therefore, the user can open a 20,000 USD perpetual swap position with 2x leverage. 
At T1, the value of 20 ETH as collateral decreased to 6,000 USD. The maintenance margin ratio (or MMR) is down to 30% (6,000 / 20,000) and 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 an 11,000 USD perpetual swap position with 2x leverage. 
At T1, 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 on FTX20 ETH assets are worth 9,000 USD as collateral, as its weight ratio is set to 90% on FTX. Therefore, the user can open an 18,000 USD perpetual swap position with 2x leverage. 
At T1, the margin ratio is down to 30% (20* 300 * 90% / 18,000), but it is still above the 3% minimum maintenance margin requirement. 
ConclusionOKEx’s capital efficiency and fund safety are superior to that of competitor exchanges.

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 USD, 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 the BTC perpetual swap is 19,900 USD. 
At T2, the price of the BTC quarterly contract is 9,000 USDT, and the price of the BTC perpetual swap is 8,500 USD. 
Trading on OKExAt T2, 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 USD. 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, the BTC quarterly contract on Binance would incur a loss of 11,000 USDT and get liquidated. The arbitrage strategy failed. 
Trading on FTXFTX does not provide a coin-margined BTC contract to implement the above strategy. 
ConclusionOKEx provides safer arbitrage opportunities and a wider variety of possible strategies.

The Unified Account system on OKEx is currently in beta testing mode — it is available to select users via demo trading. The new trading system will be rolled out to all OKEx users in the near future. Follow OKEx on our official social media channels below to stay updated.


Follow OKEx

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