Summary

Summary

1. In 2020, the growth rate of the trading volume of digital asset margin trading (futures and options) will far exceed that of spot trading. As the digital asset market gradually matures, margin trading has growth potential;

2. On the evening of December 23, 2020, OKEx announced the launch of the unified trading account system (Unified Account) and launched a global public beta;

3. Compared with the existing account trading mechanism in the market, the unified trading account cross-currency margin model uses one trading account to buy and sell derivative products settled by different digital assets at the same time, and at the same time realize the margin sharing of different product lines;

4. The core of OKEx's cross-currency margin mechanism lies in USD pricing and automatic currency exchange rules;

5. Under the cross-currency margin mechanism, the total value of positions in the account is calculated in US dollars, and then the required margin scale is obtained, which is conducive to enhancing the user's safety margin;

6. After comparative analysis, compared with Binance's mixed margin mechanism and FTX's USD margin, OKEx's unified trading account can better improve the efficiency of user capital utilization;

8. OKEx has set up a two-layer risk verification mechanism: a risk control cancellation verification mechanism, and a pre-decrease verification mechanism to avoid market fluctuations from causing unnecessary impact on user investment;

first level title

transaction mechanism

The exchange is a place for the circulation and transfer of standardized financial assets. The exchange needs to establish a corresponding transaction process and account mechanism for financial assets to ensure the smooth operation of the trading market. Only with a good trading mechanism can the asset value be fairly reflected by the market price. According to the transaction settlement method of the secondary market, the transaction mechanism can be divided into spot transaction and margin transaction.

Margin Trade: Also known as credit trading, investors do not need to purchase financial assets in full when trading financial assets. Investors only need to pay a certain percentage of margin to the exchange according to the total amount of financial assets held in the account to realize the full purchase and sale of financial assets. At the same time, the profit and loss of investors are calculated according to the total amount of positions held in the account. The margin trading mechanism can double the risk exposure of the account, bring leverage effect to investors, and magnify the income.

image description

According to the "2020 Digital Asset Futures/Options Trading Industry Research Report" released by TokenInsight, in the past year, the growth rate of the trading volume of margin trading (futures contracts, options contracts) far exceeded that of the spot market. As the digital asset market gradually matures, TokenInsight is optimistic about the growth potential of the margin trading market. In the context of the rapid increase in market size, many digital asset exchanges in the industry have upgraded and innovated the trading mechanism of the margin market. For example, the margin trading system of Ouyi OKEx can ensure that users control their own risk exposure before trading. FTX launched a hybrid margin mechanism to ensure that users can simultaneously use several digital assets in the same account for margin transactions, simplifying the operation process for users to transfer digital assets between different accounts.

image description

Changes in the market transaction scale of the spot market and derivatives market in 2020, source: TokenInsight

1. Unified trading account

"Ouyi OKEx launched a unified trading account to break through the financial barriers between different product lines

On December 23, 2020, OKEx announced the launch of the unified trading account system (Unified Account) and launched a global public beta. Compared with the existing account trading mechanism in the digital asset market, the biggest innovation of the unified trading account is that it allows users to simultaneously buy and sell multiple digital asset derivatives settled in different currencies through one trading account.

According to the information on the OKEx official website, the unified trading account provides three account modes: simple trading mode (Simple), single-currency margin mode (Single-currency margin) and cross-currency margin mode (Multi-currency margin).

image description

Ouyi OKEx unified trading account, source: Ouyi OKEx; TokenInsight

[1] In the cross-margin mode, margins will be shared between trading varieties, and trading profits and losses can be offset against each other

1.1 Simple transaction mode

"In the simple trading mode, users can hold both spot and options in the same account

Under the simple transaction mechanism, investors can conduct currency transactions through their accounts, or participate in the transaction of option contracts as option buyers.

In the simple trading mode, investors can still use spot and options to build investment portfolios to obtain a margin of safety for returns. For example, investors can hold spot and buy put options at the same time to build a protective option portfolio. When the spot price rises, obtain the benefits brought by the spot price. When the spot price falls, the profit of the put option can hedge the loss of the spot price drop, so that the risk of the overall portfolio can be controlled.

image description

Protective put option portfolio, source: TokenInsight

1.2 Single Currency Margin Mode

" Investors can simultaneously hold different derivatives settled in a single currency in their trading accounts

Simplify trading steps: In the sub-account mode, users need to hold digital assets in different product accounts before they can invest in different derivative products. For example, if investors want to trade BTC option contracts and futures contracts, they need to transfer BTC to Only by entering the corresponding option contract account and futures contract account can the transaction be completed on the corresponding transaction page. In the single-currency margin mode, users can trade different derivatives of the same currency in one account, and do not need to jump back and forth on different interfaces, which is beneficial for investors to capture the market. If investors want to hold BTC options and futures contracts at the same time, under the single-currency margin mode, investors only need to have the corresponding BTC in the single-currency margin account to trade BTC options and futures contracts.

image description

Single currency margin transaction process interface [2], source: TokenInsight

[2] The interface is from the OKEx simulation test environment

"The single-currency margin model helps to increase the safety margin of funds

Under the cross-margin mode of the single-currency margin mechanism, the margin required for investors to hold derivatives of the same currency will be calculated based on all the rights and interests of the settlement currency in the user's account, and the profit and loss of long and short positions can be offset in the account , which helps to enhance the safety margin of the account.

image description

Margin calculation under single-currency margin cross-margin mode and normal mode, source: TokenInsight

[3] The contracts displayed in the list are all U-standard contracts

The single-currency margin mechanism can realize the hedging of the income of derivatives of the same currency. When users hold two-way positions of different derivatives in the same currency, since the margin is calculated by the overall value of the account, the anti-risk ability of the account is strengthened. However, OKEx's unified account is still unable to reduce the capital occupation of account positions. Specifically, no matter in the sub-account mode or the unified account mode, the account holds the same amount of digital asset derivatives, and the required initial margin is the same, which limits the space for improving the efficiency of capital use to a certain extent.

1.3 Cross-currency margin mode

" Cross-currency margin mode, breaking account restrictions between different currencies

The cross-currency margin mechanism is the most important part of OKEx's trading account upgrade. Under the cross-currency margin mechanism, users can trade different types of digital assets in the same account, and the margin is calculated by all digital assets in the trading account. Compared with the single-currency margin mechanism, under the cross-currency margin mechanism, all digital assets in the user account can be used as margin, which further improves the utilization efficiency of digital assets in the user account. The core of OKEx's cross-currency margin mechanism lies in the US dollar denomination and automatic currency exchange rules.

Under the cross-currency margin cross-margin account, the trading account will convert it into US dollars according to the liquidity of different digital assets, and then calculate the total position value of the account. The system then calculates the margin ratio of the user's position based on the total value of the user's account, so as to realize cross-currency margin sharing. U.S. dollar denomination allows all digital assets in the investor's account to be included in the margin of the unified account, maximizing the safety margin of the user's position.

image description

USD conversion coefficient of different digital assets, source: OKEx; TokenInsight

Automatic currency exchange rules

[4] In U.S. dollar denomination, digital asset exchange is completed through USDT, not U.S. dollars

Automatic currency exchange rules, source: OKEx; TokenInsight

image description

Trigger conditions for automatic currency swap, source: OKEx; TokenInsight

Non-automatic borrowing mode: In the automatic non-borrowing mode, investors can only build derivatives positions corresponding to the digital assets they already hold. For example, users who hold BTC and ETH can trade and hold digital asset derivatives of BTC and ETH, but users cannot trade derivatives settled in other currencies.

image description

Non-automatic loan mode, source: OKEx; TokenInsight

Currency liabilities generated in the non-automatic lending mode, source: OKEx; TokenInsight

image description

Automatic loan mode: In the automatic loan mode, the unified account will provide users with a debt limit based on the effective margin in the account. Users only need to hold one digital asset to trade and hold multiple digital asset derivatives on the platform by borrowing currency. For example, if a user holds BTC, he can trade and hold digital asset derivatives such as ETH and XRP by borrowing currency.

image description

In the automatic loan mode, if a single digital asset in the account generates liabilities, the system will charge interest based on the actual amount of liabilities in the currency, and the interest fee will be charged every eight hours. If the user repays the debt before settlement, no interest will be charged. When the platform's total debt limit triggers the platform's liability risk control limit, the automatic currency exchange rules will sort the liabilities generated by the contract positions by size, and perform automatic currency exchange in this order to repay the digital assets exceeding the liability limit.

image description

Currency liabilities generated under the automatic loan mode, source: OKEx; TokenInsight

Under the cross-currency margin mechanism, the two modes of borrowing currency and not borrowing currency can realize the transaction and margin sharing of various digital asset derivatives. The main differences between the two modes are:

Automatic loan mode: In the loan mode, due to the existence of the loan mechanism, users can save the transaction and exchange process of different digital assets, and directly configure the transaction of multi-currency derivatives.

image description

The comparison between the automatic loan mode and the non-automatic loan mode, source: OKEx; TokenInsight

Through comparison, we found that the automatic lending model of OKEx can bring more convenience to investors. From the perspective of asset allocation, under the loan mechanism, as long as the user ensures that the digital assets and liabilities are within the specified amount, the system will not trade other digital assets to repay the debts, avoiding the impact of automatic currency exchange rules on account asset allocation. From the perspective of capital utilization efficiency, the unified account provides a debt limit that increases the user's asset scale and helps improve the user's capital utilization efficiency. In addition, since the automatic currency exchange rules need to be circulated through USDT, certain transaction fees will be generated. The automatic currency loan mode can avoid the cost loss caused by the automatic currency exchange rules to a certain extent.

Large-scale comprehensive exchanges: Large-scale comprehensive exchanges provide digital asset services such as spot trading and margin trading. Due to the rich business lines and large number of users, large-scale comprehensive exchanges are more stable in improving the trading mechanism. Specifically, Binance launched a hybrid margin mechanism in March 2020. Users can obtain USDT by pledging BTC, ETH and other digital assets, so as to realize the transaction of U-standard contracts. However, this mechanism is not ideal for improving the efficiency of capital use. The main reasons are: 1. The mixed margin mechanism supports fewer currencies. Currently, this mechanism only supports BUSD, BTC, ETH, and EUR pledges to obtain USDT, and users cannot use other categories of digital assets act as margin. In addition, in the mixed margin mechanism, the pledge rate of BTC and ETH is only 65% ​​and 55%, and the low pledge rate also drags down the efficiency of fund use. 2. The hybrid margin mechanism covers fewer derivatives. Currently, Binance’s hybrid mechanism only supports investment transactions in U-margin contracts, and the investment varieties that users can choose are relatively limited. 3. Binance’s mixed margin mechanism cannot achieve margin sharing. Compared with unified trading accounts, under Binance’s mixed margin mechanism, margins for different product lines need to be calculated separately, and trading accounts cannot be offset by profit and loss between positions, which strengthens investors. margin of safety. Considering that Huobi has not tried the trading mechanism yet. On the whole, the innovation of the unified trading account on the margin mechanism is more prominent in large comprehensive exchanges.

image description

Comparison of margin trading mechanisms of large comprehensive exchanges, source: TokenInsight

Professional derivatives exchanges: For professional derivatives exchanges, margin trading such as futures and options is the main business source of the platform, and the efficiency of capital utilization is especially critical for derivatives investment. Therefore, professional derivatives exchanges will have more motivation to optimize the margin mechanism; in 2020, FTX will break through the funding barriers of different derivatives business lines through US dollar pricing and automatic currency exchange rules, and realize margin sharing. At present, FTX’s USD margin mechanism is a relatively successful margin mechanism optimization scheme. We compared FTX’s USD margin mechanism with OKEx’s unified account mechanism. The analysis results are as follows:

image description

Comparison of unified trading account and USD margin mechanism, source: TokenInsight

[6] The leverage ratio is the maximum leverage ratio when the user opens a position.

The unified trading account launched by OKEx and the USD margin of FTX are both denominated in US dollars and automatically exchanged to realize shared margin. However, the unified trading account has been optimized and improved in some aspects. First of all, the unified trading account provides users with a corresponding interest-free amount, which reduces the borrowing costs of users in the investment process to a certain extent. In addition, the USD margin mechanism only supports USD stablecoin margin contracts, while OKEx's unified trading account can cover various digital asset derivatives such as spot, options, and futures, giving users more trading convenience. On the whole, OKEx's unified account has a stronger effect on improving capital utilization efficiency than FTX's USD margin mechanism.

2. Risk control mechanism

2.1 Risk Control Mechanism

The unified account allows investors to hold multiple types of digital asset derivatives in different currencies in the account, which improves the utilization efficiency of user funds, but it also brings risks. For investors, under the cross-currency margin mechanism, when a certain digital asset in the account has a large adjustment, due to the existence of automatic currency exchange rules, all digital asset positions in the account will be impacted by the price of a single currency. incurring losses. If the currency fluctuates sharply, the investor's loss may be all digital assets in the account. From the perspective of the market, in the cross-currency margin mode, if the price of a single digital asset fluctuates sharply, due to the existence of automatic currency exchange rules, it may cause the selling of other digital assets, which has certain hidden dangers to the trading operation of the platform.

In order to ensure the smooth operation of the platform, OKEx has optimized and updated the risk control mechanism. OKEx has set up a two-layer risk verification mechanism: the risk control cancellation verification mechanism, and the pre-decrease verification mechanism to avoid market fluctuations from causing unnecessary impact on user investment. At the same time, in the setting of the forced liquidation mechanism, OKEx adopts a phased liquidation mechanism to minimize the impact of forced liquidation on users.

In the margin trading mechanism of digital asset derivatives, in order to realize the security of contract transactions, the margin will be occupied by the system in advance when the user places an order. As shown in the table below, when the user's account assets fluctuate downwards but have not yet reached the pre-reduction risk level[7], the risk control cancellation mechanism will cancel some of the investor's pending orders according to the loss status of the account to release the margin. Return the investor's account to a safe state. This can not only protect the security of the user's assets, but also prevent all the pending orders of the user from being canceled due to market fluctuations, which will affect the normal investment plan of the user.

image description

Risk control cancellation order verification mechanism, source: OKEx; TokenInsight

[7] The margin rate is lower than 100%, that is, the pre-reduction risk level is reached

When the market fluctuation exceeds the tolerance range of margin trading and the account guarantee rate is lower than 100%, the pre-decrement and cancellation system will be triggered. The system will cancel all pending orders and orders occupying the margin to release the margin and increase the margin rate. The specific pre-decrease order cancellation mechanism is as follows:

image description

Pre-lightening verification mechanism, source: TokenInsight

After canceling the order and releasing the margin, if the margin rate of the account is still less than 100%. The system will perform forced liquidation. It is worth noting that in the mechanism design of Ouyi OKEx's forced liquidation, the system will not liquidate all assets in the account, but will give priority to the position with the best risk reduction effect, and try to avoid the forced liquidation of the user's assets. Impact.

image description

Comparison of forced liquidation mechanisms, source: TokenInsight

3. Transaction Evaluation

Ouyi OKEx has opened the simulated transaction of the unified account mechanism. TokenInsight conducts transaction tests on the unified account in the simulated environment. At the same time, it compares and analyzes the unified account mode and the sub-account mode to evaluate the actual application experience of the Ouyi OKEx unified trading account. The evaluation results are as follows.

Trading options: In the sub-account mode, investors need to conduct trading operations of digital asset derivatives in different trading accounts, and the operation process is more complicated. At the same time, when investors purchase digital asset derivatives, they need to have the corresponding digital assets in the product account. The funds in different accounts cannot be used in common, and the margin needs to be calculated separately. For example, when a user conducts a BTC perpetual contract transaction, if he wants to configure a BTC delivery contract, he needs to transfer the funds to the delivery contract account, and at the same time, he needs to jump to the delivery contract interface to perform the transaction. Under the sub-account model, the use of funds in the account is inefficient.

image description

Ouyi OKEx sub-account model, source: Ouyi OKEx; TokenInsight

Position status: In the sub-account mode, the profit and loss status of different derivatives held by the user is only displayed at the bottom of the product trading interface. Therefore, when users hold multiple digital asset derivatives, they need to jump in different pages to observe the profit and loss of different derivative positions. In the sub-account mode, there are more steps to obtain position information. There may be a certain operational time lag for investors to respond to price changes of digital assets.

3.2 Unified Account Mode

Mode selection: Investors can select the required margin trading mode in the settings in the upper right corner: simple mode, single currency mode, and cross-currency mode. However, it is worth noting that we found that users cannot switch margin mode while holding positions. Therefore, when investors want to switch between different margin modes in the unified trading account, they need to clear the derivatives positions in the account in advance.

image description

Ouyi OKEx Unified Trading Account Mode (Cross-currency Margin Mode), Source: Ouyi OKEx; TokenInsight

Trading options: Under the unified account mode, users can trade different types of digital asset derivatives on one trading interface. Users do not need to jump back and forth in different interfaces, nor do they need to transfer funds between different sub-accounts. In terms of specific operations, after the user selects the type of digital asset, the system will display different derivatives of the digital asset. For example, if the user selects BTC, the corresponding option bar will pop up on the interface, and the user can choose BTC options, delivery contracts, perpetual contracts and other derivative products for trading.

Position information: In the unified account mode, the position and profit and loss of all digital derivatives of the user will be reflected at the bottom of the interface. The upper part of the position information displays the ratio of the user's current overall position capital occupation to margin, and reminds the user of the position status. In the interface below, users can directly observe the position and income of various derivatives.

4. Future Outlook

" The unified account helps users break through the financial barriers of product lines, and the trading volume of OKEx platform may usher in considerable growth

If the unified trading account is officially launched, a more efficient margin trading mechanism will break through the financial barriers between different product accounts. Since all digital assets of users can be used as margin, the scale of superimposed margin is calculated according to the overall value of the account, and the efficiency of capital utilization will be released. We make relevant assumptions based on the mechanism for the improvement of capital efficiency, and conduct a sensitivity analysis on the impact of the unified account on the trading volume of the platform. According to the analysis results, even under relatively neutral assumptions, the trading volume of OKEx platform has room for 32% growth.

Sensitivity analysis of unified trading account model to platform trading volume increase, source: TokenInsight

image description

2020 Top 5 Futures Exchange Trading Volume Ranking, Source: TokenInsight

risk warning

risk warning

To prevent illegal fund-raising activities under the banner of "blockchain" and "virtual currency" by various financial platforms, TokenInsight will strictly abide by national laws and regulatory regulations, and resolutely resist the use of blockchain for illegal fund-raising, network pyramid schemes, 1C0 and other Variations, dissemination of bad information and other illegal acts.

To prevent illegal fund-raising activities under the banner of "blockchain" and "virtual currency" by various financial platforms, TokenInsight will strictly abide by national laws and regulatory regulations, and resolutely resist the use of blockchain for illegal fund-raising, network pyramid schemes, 1C0 and other Variations, dissemination of bad information and other illegal acts.