Why do we need a unified account?

Portfolio Margin, investment portfolio margin, is a risk-based margin policy that can be traced back more than thirty years ago. In 1986, the Options Clearing Corporation (OCC) introduced portfolio margin to replace margin based on clearing company strategies. Twenty years later, the Chicago Board Options Exchange and the New York Stock Exchange partnered with the U.S. Securities and Exchange Commission to offer portfolio margin to eligible clients on a pilot basis.

On December 12, 2006, the SEC approved a rule allowing brokerage firms to use portfolio margin. The approval of this regulation has directly or indirectly promoted the rapid development of securities derivatives in the United States.

A brief history of portfolio margin, source: TD Ameritrade

According to BIS data, in 2007, the open interest in the global derivatives market grew faster than expected, and the open interest was about 507.9 trillion US dollars.

The positions of all risk asset derivatives in the world, source: BIS

Investors' demand for portfolio margin, or the demand for capital use efficiency, has driven major trading platforms to launch portfolio margin functions. Margin test. At present, the Dalian Commodity Exchange portfolio margin simulation system has been put into operation.

Unified accounts may become a trend

Obviously, proven by the capital market for decades, portfolio margin is an extremely useful function for investors. However, among the cryptocurrency trading platforms, only a few platforms such as Deribit and FTX have launched this function.

The main reason is that the richness of encrypted asset derivatives is not enough. According to BIS statistics, in 2000, the global options open interest exceeded the futures open interest for the first time, and it has been ahead ever since. The high proportion of option positions in derivatives is one of the signs that institutions dominate the market, which is also in line with the law of "de-retailization" of the US securities market after the Internet speculative bubble burst in 2000. However, users in the cryptocurrency options market have a short education time, and a large number of investors are not familiar with options. The options open interest of Bitcoin (approximately US$5.6 billion) is only 60% of the futures open interest (approximately US$9.4 billion).

Currently, the combination margin platform can be launched mainly because of its leadership in options trading. According to bybt data, the top three trading platforms for Bitcoin options trading positions are Deribit, CME and OKEx.

Bitcoin options open interest, source: bybt

Of course, in addition to user education on options, portfolio margin also requires extremely high technical requirements on the trading platform itself. Taking Deribit as an example, the trading platform needs to calculate the profit and loss of all its token positions in real time, such as the profit and loss of futures and options, and calculate its overall profit and loss. When the user holds too many options, different prices, different directions (buy call, sell call, buy put, sell put), and different delivery time points, the amount of calculation on the platform will increase exponentially.

Compared with Deribit, which only has futures market and options market, more trading platforms such as OKEx also have currency trading , contract trading (delivery and perpetual contracts), leveraged trading, options trading and other businesses.

Therefore, OKEx has carried out a special upgrade on the combined margin model and launched a "unified account". Technically, the difficulty of OKEx's "unified account" is a step higher than that of "combined margin". All business transactions and risk control logic need to be overthrown and started from scratch. In the cross-currency mode, the system risk control needs to take into account the real-time asset conversion equity and position risk of the entire account. At the same time, in order to ensure that there is no error in the quotation of each business module, it is necessary to build a millisecond-level server to process the profit and loss of each transaction. In other words, the "unified account" will be a big test of OKEx system load and transaction risk control.

Due to the special environment of the encrypted market compared with the traditional securities market, its derivatives are more playable. Each derivative is like a strong trunk, and the unified account is like the core of balance for coordinating the trunk. If you just make all kinds of derivatives bigger and stronger, but ignore the core of balance, the entire trading platform will easily be unable to walk normally like a cripple .

With the Bitcoin bull market and the entry of various institutions on Wall Street, the market will become more professional, institutions The demand for derivatives will show a blowout explosion, and unified accounts will also become the next trend in the trading platform strategy.

Why investment needs a unified account

In many people's minds, speculating in coins is gambling. However, this is not the case. Many investors speculate in coins for speculative operations such as arbitrage and hedging. For professional operators, portfolio margin is a sharp weapon in their hands, which can greatly improve capital efficiency.

For example, when an investor sells a put (short option) and shorts a BTC at the same time. In the traditional trading mode, 0.2 BTC may be required as a margin, but in the combined margin mode, only 0.105 BTC may be required as a margin (Rhythm Note: The margin is subject to actual conditions). Therefore, combined margin can greatly improve the efficiency of capital use.

OKEx Unified Account Demo Disk

OKEx launched In addition to reducing the margin for futures and options portfolios, the "unified account" also opens up the possibility of more trading combinations. "Unified account" has three modes to choose from, and users can choose according to their trading preferences.

The biggest advantage of the unified account is that there is no need to transfer funds back and forth between more than ten accounts before the transaction. Account can complete the simplest transaction. For further transactions, there are also single-currency margin mode and cross-currency margin mode to choose from.

The single-currency margin model is just like the literal meaning, using a single currency as the margin transaction of all derivatives, for example, Traders have BTC in their unified account, so they can use these BTC to conduct BTC currency transactions, leverage transactions, delivery contracts, perpetual contracts, and option contract transactions. At the same time, arbitrage hedging can also be carried out according to different combinations. When investors find that the BTC delivery contract has a large premium, they can borrow BTC through leveraged trading and short BTC in the delivery contract to earn the price difference between the two.

Leveraging BTC delivery to short BTC, image source: OKEx unified account simulation disk

What excites arbitrage and hedging investors most is the third mode of the unified account "cross-currency margin mode". In this mode, if you choose cross-margin trading, all positions, including contracts , Leverage and spot positions will be converted into US dollars at different conversion rates according to the level of liquidity. As long as the dollar equivalent is greater than zero, liquidation will never occur. For arbitrage and hedging investors, this can greatly increase the utilization rate of their funds.

In the past many years of market history, most cryptocurrencies have not outperformed BTC, so short most The token-to-BTC exchange rate is a good way to invest. Before there is a unified account, investors need to short altcoins and long BTC at the same time. This requires two margins, and the leverage ratio on both sides needs to be controlled at a low level to prevent violent fluctuations from causing one side of the contract to explode. After having a unified account, the margin required to open a hedging contract with the same position may only be half of the previous one. When altcoins and BTC experience unilateral surges and falls at the same time, it will not cause a single token to explode.

For professional investors, the unified account simplifies many complicated fund transfers and reduces hedging risks. However, the unified account is not very effective for zero-sum game players who only participate in contracts and bet on unilateral market conditions.

Summary

According to Kang According to the wave cycle theory, the last big bull market is in 2019. However, the facts and theories are somewhat different. In 2020, due to the outbreak of the COVID-19 epidemic, the capital market plummeted rapidly. After the black swan fell into a huge hole, a new round of bull market brought about by monetary easing began. From the shortage of liquidity to the huge amount of cash released by the Federal Reserve, institutions as far away as the Western Hemisphere have discovered the value of Bitcoin assets.

Faced with the increase of institutional holdings, the cryptocurrency investment industry seems to be carrying out a movement to de-retail . Behind the record highs of Bitcoin, most people have forgotten the tragedy of the 312 plunge nine months ago. It is also because of 312 that most investors realize the importance of investment portfolios.

Unified account is not the final form of trading products. In the rapidly changing market, products like unified account will become more and more More and more investors will become more mature.

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