Spot Margin Trading Explainer

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Disclaimers:

    1. FTX Token (FTT) is 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 transact in FTT.
    2. Trading on FTX is 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 FTX.
    3. FTX retains the final right to interpretation of its rules and conditions on these and all contracts.
    4. FTX retains the final right to modify terms of its rules and conditions on these and all contracts.
    5. Much of this article is an approximation and ignores details, e.g. fees.
    6. When in doubt, feel free to contact us for clarifications.
    7. There are risk factors associated with margin trading, chiefly liquidation risk.  Please decide whether margin trading is right for you.
    8. As the terms of service make clear, manipulative behavior is not tolerated on FTX.  Any attempts to do so may result in account termination at FTX's sole discretion.

 

How do you enable margin trading?

To enable margin trading and borrowing, visit your settings page or the borrowing page.  If you turn margin trading and borrowing on, then your account will attempt to borrow any spot assets that it is short.  If you turn it off, there will instead be collateral conversions to true up any short balances.

To enable spot lending, visit your settings page or the lending page.

 

How does borrowing/lending work?

If you have spot margin trading enabled, then you can lend out one spot token in order to borrow another; for instance you could lend out $50,000 in order to borrow 1 BTC.  That USD would then be locked up and potentially loaned out to another user; you would receive interest if it was.  Conversely, you would pay interest to another user on the 1 BTC you were borrowing.

There are a number of different ways to implement margin trading and borrow/lending.  FTX’s is the most automatic in the industry, though the user still has full control over their borrowing and lending.  Rather than requiring discrete actions to request borrows, receive them, move the funds, open/close positions, etc., the entire process is abstracted away into net balances.

As long as you have sufficient margin, you can borrow spot tokens simply by spending beyond your account’s balance of them.

So say that you have $50,000 (USD) in your account and nothing else.  If you sold 1 BTC for $15,000 in the spot BTC/USD orderbook, your total balances would then be: +65,000 USD; -1 BTC.  You didn’t have the BTC and so need to borrow it in order to sell it.  FTX does this automatically when you sell, sending an order to the funding book on your behalf to borrow 1 BTC.

You can even do this with withdrawals!  If your account has 3 BTC and nothing else, you can request a withdrawal of 1 ETH (despite not having any ETH!).  FTX will automatically request a borrow for 1 ETH for you, and you can then withdraw that ETH.  Note, however, that you cannot borrow to withdraw for greater size than is available and unused in the borrow-lending book!

So there’s no need to manage collateral vs margin positions vs withdrawable tokens vs margin trading vs spot trading.  The same commands (buy/sell/deposit/withdraw) work normally and are allowed as long as your account has enough total collateral to support the necessary borrows.

 

What assets are available for borrowing/lending?

You can find the current list on the borrow and lending pages.  Most but not all spot assets available for deposit and withdrawal on FTX can be borrowed.  As of November 2020, the borrowable assets will soon be those which have both spot markets and perpetual or quarterly futures, and aren’t stocks.



How does margin work for borrowing?

Your spot margin positions are cross-margined with your futures positions; there is no separate spot margin requirement you have to monitor.

Generally the way that futures margin works is that each contract has a margin requirement (initial margin fraction to open a position and maintenance margin fraction to avoid liquidation), and you need a total collateral value which meets those thresholds.

Spot margin is similar.  The position size of a spot margin position is the notional size of any short (negative) balances you have.  So for instance if you have + $65,000; -2 BTC; and BTC is trading at $15,000, then your position size from spot is $30,000 (2 BTC * $15,000 per BTC).  This is treated the same as if you had a $30,000 futures position on, and requires initial margin to increase and maintenance margin to avoid liquidation.

In general, if a spot token has a collateral weight of W, it has an initial margin requirement of [(1.1/W)-1].  So, for instance, if it has a collateral weight of 1, then its IMF is 10%; and if its collateral weight is 0.6, then its IMF is around 0.83.  The maintenance margin is [(1.03/W)-1].  (The auto-close margin--the point at which you are not just liquidated but in fact closed down off-exchange--is 50% of the maintenance margin requirement.)  This means that you can open positions up to 10x leverage and will get liquidated around 33x leverage if all of the relevant tokens have a collateral weight of 1.

For large positions, initial margin requirement = max(1.1/W - 1, IMF factor * sqrt(position size in tokens)) and maintenance margin requirement = max(1.03/W - 1, 0.6 * IMF factor * sqrt(position size in tokens)).

 

Note that, in addition to requiring margin, negative spot positions also decrease your account collateral value.  Your account’s total collateral is the sum over all spot tokens of:

 

  1. If token quantity is positive
    1. Token quantity * token mark price * min(collateral weight, 1.1 / (1 + imf factor * sqrt(token quantity)))
  2. If token quantity is negative
    1. Token quantity * token mark price

 

So if you have +2 BTC, -1 ETH; BTC is worth $15,000; ETH is worth $500; BTC’s collateral ratio is 0.975; and ETH’s collateral ratio is 0.95; then your account’s collateral is:

 

  1. BTC:
    1. Quantity: 2
    2. Mark price: $15,000
    3. Collateral ratio: 0.975
    4. Value: $29,250
  2. ETH:
    1. Quantity: -1
    2. Mark price: $500
    3. Collateral ratio: doesn’t matter
    4. Value: -$500
  3. Total collateral:
    1. $28,750
  4. Margin required:
    1. Position size: $500
    2. Initial margin required: (1.1/0.95-1)*500 = $79
    3. Maintenance margin required: $42
    4. Auto-close margin required: $21

 

So the short ETH position both requires collateral, and decreases your total account value (and thus total account collateral).

 

This is the same collateral number that futures use!  So say that you instead had: +2 BTC, -1 ETH, -3 BTC-PERP (short)

 

  1. BTC:
    1. Quantity: 2
    2. Mark price: $15,000
    3. Collateral ratio: 0.975
    4. Value: $29,250
  2. ETH:
    1. Quantity: -1
    2. Mark price: $500
    3. Collateral ratio: doesn’t matter
    4. Value: -$500
  3. BTC-PERP
    1. Quantity: 3
    2. Mark price: $15,000
    3. Collateral ratio: doesn’t matter
    4. Required initial margin: 5%
  4. Total collateral:
    1. $28,750
  5. Margin required:
    1. Position size: $500 + $45,000
    2. Initial margin required:
      1. ETH:  (1.1/0.95-1)* $500 = $79
      2. BTC-PERP: 5% * $45,000 = $2,250
      3. Total: $2,329
    3. Maintenance margin required: 
      1. ETH: 0.3*79 = $42
      2. BTC-PERP: 3% * $45,000 = $1,350
      3. Total: $1,392



Stocks

Borrowing and lending stocks works identically to everything else, except that they all have a IMF of 20%. The max leverage you can achieve if exclusively borrowing stocks is 5x.

 

Interest rates

Every hour, lenders are paid and borrowers are charged.  This is determined as follows:

  1. All lenders specify a minimum borrow rate they must receive for that hour.
  2. At the beginning of the hour, we calculate the total borrow demand for each coin between all users.
  3. We have an auction: we sort the lending offers by minimum rate, and take the cheapest set that satisfies the borrow demand.  The borrow rate is set to the minimum borrow rate of the marginal (most expensive) loan that was required.
    1. For example, say that:
      1. Alice: wants to borrow 2 BTC
      2. Bob: wants to borrow 3 BTC
      3. Charlie: lending 1 BTC, min 0.01%
      4. Denise: lending 10 BTC, min 0.03%
    2. Then:
      1. Total borrow demand is 5 BTC.
      2. This borrows Charlie’s BTC and 4 of Denise's
      3. The marginal loan is Denise's 4 BTC loaned out at 0.03% minimum
      4. So all 5 BTC of borrows -- including the one against Charlie -- use an interest rate of 0.03%
  4. FTX charges borrowers an additional fee; for borrowers, it's already baked into the rates they see. See below for an explanation on how these are calculated.
  5. The interest rates are generally quoted in % per day (e.g. 0.05%/day); 1/24th of that is paid out on the hour.

You can monitor the borrow rates you're paying here.

So this means the following:

  1. All borrow rates only last for one hour; each hour, they’re re-determined.
  2. Every borrower pays the same rate for an hour/coin; and every lender who does in fact lend their tokens receives the same interest rate for an hour/coin.
  3. When you open up a borrow mid-hour, you end up paying for that hour’s interest rate at the end during the auction.
  4. Note that you will be charged interest on your borrows whether they're held on FTX, withdrawn, pending withdrawal, sold, or anything else.

 

Open orders

Note that, by default, placing an offer to sell 1 BTC/USD spot if you don’t have any BTC would require borrowing it and paying interest even if the order wasn’t yet filled, because it could require delivery at any point were it to be filled.

However, the first $300,000 worth of open orders that would require a borrow per account instead do not need to pay for a borrow in the asset unless/until they’re filled.

 

Lending

To lend an asset out, you specify the quantity you want to lend, and the minimum interest rate you’d require.  If this loan ends up being borrowed (i.e. your interest rate is below the marginal rate), you will receive the marginal interest rate hourly.  By default your specified parameters (amount to try to lend, minimum interest rate) will persist from hour to hour. Lenders bear no counterparty risk: FTX guarantees interest payments for however long your funds are borrowed, even if the borrower gets liquidated.

Assets that you are lending are effectively locked, and cannot be withdrawn/sold/used as collateral/staked/etc.  However, they can be used as maintenance margin to prevent liquidations.

If you choose to stop lending your coins and they were in fact being borrowed, you will stop earning interest on them at the end of the hour and they will be unlocked in 1 hours.  If you were offering to lend your coins but they were not actually borrowed (because there was not sufficient demand at your minimum interest rate), you are free to use the coins and stop trying to lend at any point.

You can manage your loans at ftx.com/spot-margin/lending.

 

Fees

FTX charges a fee on interest payments made. Outside of that, there are no fees beyond the typical FTX trading fees.  The net fee on loans is already built into the interest rates you see (so lenders and borrowers see slightly different rates); there is no fee on top of that.

Details on how borrow rate is calculated: 
Borrow rate = (lending rate) * ( 1 + borrower’s spot margin borrow rate)
Borrower’s spot margin borrow rate = 500 * borrower’s taker fee

Note: if funds are borrowed and withdrawn from the account the expected borrow rate for the next hour will be applied to the withdrawn funds

 

Documents

This post outlines the basics of the FTX spot margin 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 FTX Institutional Customer Margin and Line of Credit Agreement.  As always, FTX reserves the right to final interpretation of its products.

 

Risk

FTX's risk engine will attempt to liquidate any users before they could get negative net account balance; using spot margin opens you up to liquidation risk.  In general, FTX and its backstop fund will attempt to protect other users against other accounts' bankruptcy risk.

FTX may impose margin position limits or decreasing collateral on large positions of illiquid coins.

 

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