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February 3, 2020

How are Trading Fees blocked on Delta Exchange?

On Delta Exchange, we only offer Isolated Margin. In Isolated Margin system, each position and has a dedicated margin assigned to it. This is referred to as Position Margin. To further ensure that each position is completely independent of the rest of the account, the trading fee required to close a position is reserved along with the Position Margin.

The reservation of margin and trading fees is done when an order is placed. Therefore, with each order, trading fees are reserved for:

(a) execution of the order and
(b) closing of the position which will result from the aforementioned execution

Trading fees reserved with an order = (Quantity x Entry_Price x Taker Fee) + (Quantity x Exit_Price x Taker Fee)

You might be aware that Delta has different fees for Taker Orders and Maker Orders. While reserving trading fees with orders, it is assumed that all orders will be executed as Taker Orders. Thus, twice of Taker Fees is reserved with an order. You can learn more about Maker and Taker fees here.

Next, we need to understand how the values of Entry_Price and Exit_Price are computed.

Entry_Price: While placing an order, if the order placed is matched by a better price, fees are blocked on that price. In case, the order placed by the trader is the best available price, fees are blocked on that price.

For Instance: A trader places a buy order at $100. There is a seller at $98. Since $98 is better than $100, the trading fees will be charged on $98.

On the other hand, if a buyer places a buy order at $100, the best available seller is at $105 and if the buyer agrees to buy at $105, the trading fees will be charged on $105.

Exit_Price: The computation of Exit_Price depends on both types of contract and the order direction (buy or sell). There are 4 possible scenarios:

Vanilla Futures – Buy

Suppose a trader buys 10 contracts at $100 at 10x leverage on a vanilla futures contract. The liquidation price of this position will be $90. If the trader is able to pay the trading fees when he exits the position at $100, he will be able to pay the trading fees for all other cases. Hence, the Exit_Price is set at $100.

= (10 x $100 x Fee)

Vanilla Futures – Sell

In this scenario, a trader sells 10 contracts at $100 at 10x leverage on a vanilla futures contract. The liquidation price of this position will be $110. At $110 the trader will exit the position if the trade is not in his favour. Hence, the Exit_Price is set at $110.

= (10 x $110 x Fee)

Inverse Futures – Buy

Moving on to inverse futures, since the PnL is denominated in the base currency, the Exit_Price is computed differently. If a trader wishes to buy 10 contracts on an inverse futures contract at 10x leverage, the liquidation price is ~$91.

= (10 x 1/$90 x Fee)

Inverse Futures – Sell

Suppose a trader wishes to sell 10 contracts at $100 at 10x leverage. The liquidation price is $110 and since the liquidation price is higher than the entry price, the trading fee will be charged at the liquidation price.

= (10 x 1/$110 x Fee)

The stark difference between trading fees on vanilla futures and inverse futures is the reciprocal trading fees charged at the entry and exit prices.

Please note that the numbers in the examples are for illustrative purposes. Click here to know the actual trading fees on the platform.

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