Coinnice Trading Class: Contract Trading and Financing

In the previous chapter, we talked about contract trading and spot trading. In this chapter, we will talk about contract trading and financing and currency. It was said before that "contract trading is a standardized contract that promises to deliver a certain amount of subject matter at a specific time and place in the future. Bitcoin contract trading provided by Bitcoin exchanges is traded in Bitcoin." The explanation of financing in the "New Palgrave Dictionary of Economics" is: financing is a monetary transaction method used to pay for purchases that exceed cash, or a monetary method used to raise funds to acquire assets. In a narrow sense, financing and currency is the act and process of raising funds or coins for an enterprise. "Financing and currency" is also a Bitcoin player using the platform assets as collateral to borrow funds or Bitcoin from the trading platform or other Bitcoin players, so "financing and currency" adopts margin trading.

After Huobi, OKCoin, China Bitcoin and other platforms launched their “financing and currency lending” businesses in March 2014, their trading volumes surged, and domestic Bitcoin trading volume has accounted for nearly 70% of the global share.

OKcoin's financing and coin lending is a p2p model, that is, users borrow and lend money to each other. All borrowing amounts and lending rates are determined by users, and interest rate fluctuations are regulated by the market. Huobi's financing and coin lending is a platform model, and interest rates are priced according to VIP levels, which can be booked in advance. Coinnice's upcoming financing and coin lending adopts a platform credit model, eliminating the borrowing process, and users can use it directly. The interest rate may reach 80% of OKcoin. The account can be repaid as long as there is money. There is no fixed repayment date limit, and the unused part does not count as interest. Discounts can also be given according to VIP levels. Contract trading and financing and coin lending are also two main ways of leveraged trading.

Bitcoin investors are increasingly fond of using leveraged trading. Leverage can use a small amount of funds to make investments several times the original amount, in the hope of obtaining returns several times the volatility of the investment to better expand the results. Although it also carries more risks, every time I see my friends around me making huge profits, I can't help but suppress the urge to use leveraged trading.

According to incomplete statistics, there are about 8,000 contract trading investors, supporting a daily trading volume of about 1 million BTC, which is slightly higher than spot trading most of the time. There are about 50,000 spot trading users, and the proportion of those using margin trading is not yet known. A rough estimate is that margin trading accounts for about one-third of the total trading volume.

Contract trading is not subject to quota restrictions, and you can buy or sell BTC with a maximum leverage of 20 times your assets. Currently, the maximum credit leverage of major platforms for margin trading is 5 times, and they are often subject to quota restrictions and cannot raise funds. The leverage multiple is also much lower than that of contract trading.

The handling fee for contract trading is 0.03% of the opening amount, and the handling fee for margin trading is 0.01%. If the user only closes or opens a position once on the same day, the interest rate for margin trading is about 3 times that of contract trading. If the user frequently buys and sells margin trading more than 3 times a day, the handling fee for margin trading will be slightly higher than that of contract trading.

Margin trading will be liquidated when the net assets of margin trading are about 10%, and contract trading will be liquidated when the net assets of margin trading are 10%-20% (okcoin 20%, coinice 10%). The risk of margin trading on the okcoin platform is slightly lower, and the risks of the two on the coinice platform are basically the same. Compared with margin trading, contract trading has greater advantages in terms of leverage multiples and the convenience of opening positions with one-time transaction fees.

On many platforms, it is common for users to have high interest rates or be unable to repay loans, which may result in missing opportunities when the market comes. Therefore, we believe that contract trading is more convenient for users, with lower fees and basically the same margin of safety against liquidation.

At the same time, we remind users that when using leveraged trading, they should fully understand the risks of virtual currency investment and the impact of leveraged trading on risk amplification, and operate with caution and within their means. When using leveraged trading, users should abide by relevant national laws and ensure that the source of trading funds is legal and compliant.