Spot margin trading is a method that uses funds provided by a third party. This is possible by margin accounts, which allow traders to leverage their positions – and therefore their gains. Here’s how to do a spot margin trade at FTX.
To enable spot margin trading, the user needs to visit the settings or borrowing page at the website. Once enabled, the account will attempt to borrow any spot assets that are sold. If the user disables it, there will be collateral conversions to correct any short positions.
Spot margin traiding: how do taking and lending transactions work?
With the feature enabled, the user can lend one token on demand to borrow another. For example, lending US$ 56,000.00 to borrow 1 BTC. Those borrowed dollars would be locked up and potentially loaned to another user. Whoever lends, receives interest. On the other hand, whoever borrows, pays interest.
There are several ways to implement margin spot trading and ask/lend. At FTX, the whole process is summarized in net balances. As long as the user has enough margin, he can borrow spot tokens simply by spending beyond his account balance. This also applies to withdrawals.
For example, if a person has US$ 100.000 (USD) in their account and sells 1 BTC for US$ 50.000. In the cash BTC/USD order wallet, the total balance would be: +150,000 USD; -1 BTC. That is, he did not have BTC and therefore needs to borrow it to sell it afterwards. FTX does this automatically by sending an order to the funding book to borrow 1 BTC.
Similarly, if an account has 3 BTC and the user requests the withdrawal of 1 ETH, FTX will automatically request a loan of 1 ETH and the user can cash out.
Therefore, there is no need to manage different positions. The same commands (buy / sell / deposit / withdraw) work normally and are allowed as long as the account has enough collateral to support the necessary loans.
What assets are available for lending / borrowing?
How does the margin for loans work?
At sight margin positions have cross-margin with futures positions. Each contract has a margin requirement and it is necessary to have a guarantee that meets these limits.
The spot margin is similar. The position size of a spot margin is the overall size of any short (negative) balances that the user has.
The initial margin for all spot positions (i.e., short token positions) is 10%; the maintenance margin is 3%. (The automatic close margin – the point at which you are not just liquidated, but actually closed out of the exchange – is 1.25%.) This means that you can open positions of up to 10x the leverage and will be liquidated around 33x the leverage.
In addition to requiring margin, negative spot positions also decrease the value of the account’s collateral