About margin trading and their associated risk.
We will explain about margin trading and their associated risk. Please read this page carefully if you are planning to do margin trading.
What is margin trading?
- At here margin trading is a type of trading where you borrow BTC, Ether or ETC for trading purpose and pay back on a due date. Borrowed money can be only used within coincheck. Traders can't transfer your money outside of coincheck. Also, coincheck will not lend bitcoin, Ether or ETC directly to traders. We just connect trader who wants to lend and borrow YEN or bitcoins.
Understanding leverage and risk
- With margin trading, there will be high risk because of leverage. As you increase the leverage amount traders can trade more than what they actually own so traders can expect more profit, but at the same time trader can expect more loss.
- If the loss exceeds your investment amount we will ask you to pay excess loss.
- With margin trading, the bitcoin rate fluctuates 24/7. Due to above reason, if your prediction is not right exchange loss may occur.
- For an asset, its liquidity is its ability to be bought or sold without any discount or premium. Liquidity thus reflects the amount and frequency the asset and traded. The more something is bought and sold, an individual's ability to charge a premium or look for discounts lowers. However, the less liquid something is, the harder it will be for it to be bought or sold (High liquidity risk).
- When liquidity risk increases there may be spread in buy and sell price or there might be no transaction at all triggering transaction in different price. In some case, there might be more loss than your deposit. In the worst case scenario, the exchange itself might close leaving traders not able to trade.
- Internet trading is possible only when all parties including customers' computer, the Internet, and exchange company's server is working properly. If customers' computer malfunctions, internet connection is unstable, when there is an error in exchange company's server or program customers may be in a situation where they can not trade. coincheck puts the best effort to keep the service running by backing up the system periodically.
- Also, at our exchange service due to mechanical error, there might be a case where price display might be different than actual price. When transaction is settled during the case above, no matter of customers stance coincheck have the privilege to reset all transactions and coincheck have no concern regarding this case.
- Also, due to systematic error customers' order might not settle and customers order might stop or delay.
- Listed above is the margin trading risk explained in general. The list doesn't explain every possible risk that could happen.
- Profit or loss caused by margin trading risk is an investor's responsibility.