I. Margin
Margin is the principal amount required by the user to open a position in contract trading.
II. Initial Margin
Overview:
Initial Margin is the minimum deposit required to open a position in trading. Due to the high leverage in contracts, users can trade larger positions with the same amount of capital, amplifying both potential profits and losses.
In isolated margin mode, users can increase or decrease the margin on a position, but the margin must not be lower than the sum of the initial margin and the closing fee.
Importance of Initial Margin:
Risk Management: The initial margin ensures that users have enough funds to cover potential losses during contract trading, reducing the risk for both the exchange and other users.
Credit Guarantee: The initial margin acts as a credit guarantee, ensuring users can maintain their positions during market fluctuations.
Leverage in Trading: The initial margin allows users to control larger positions with less capital, amplifying both potential gains and risks.
Calculation of Initial Margin:
In cross margin mode, all available funds in the user's account are considered available margin.
Formula for Initial Margin:
Opening margin = Opening quantity × Latest price / Leverage + Opening quantity × Latest price × Closing fee rate
The initial margin will change as the price of the trading pair fluctuates.
In Isolated Margin mode, each position's margin is calculated separately, profits and losses are independent of each other.
Formula for Initial Margin in Isolated Margin Mode: Opening margin = Opening quantity × Opening average price / Leverage + Opening quantity × Opening average price × Closing fee rate
The initial margin remains fixed.
Example: If the user uses 50x leverage to open a long position of 200 USDT, with a fee rate of 0.075%, the initial margin for the position would be:
(200 / 50) + 200 * 0.075% = 4.15 USDT
Common Questions:
How to know how much initial margin to transfer?
The system will automatically calculate and display the required initial margin when placing an order.What’s the difference between initial margin and occupied margin?
Initial Margin: The minimum margin required to open a position, ensuring enough capital to open a position.
Occupied Margin: The margin level that must be maintained during the holding of a position, which changes with market fluctuations.
The initial margin is the minimum requirement at the time of opening, while the occupied margin is the maintenance requirement during the position.
III. Maintenance Margin
Overview:
Maintenance margin refers to the minimum amount of margin required to keep an existing position. If the balance in the account falls below this level, the user’s position may be forcibly liquidated.
Importance of Maintenance Margin:
The maintenance margin is designed to protect the exchange and other traders from potential losses. When the market price moves unfavorably for the position holder, and if the account margin is insufficient to maintain the position (i.e., the current maintenance margin ratio is >=100%), the forced liquidation mechanism will trigger, closing some or all positions to avoid further losses.
Calculation of Maintenance Margin:
The amount of maintenance margin depends on the position value and the maintenance margin ratio, which is related to the risk limit.
Formula for Maintenance Margin in Cross Margin Mode: Single position maintenance margin = Position value × Maintenance margin ratio + Fees Cross margin ratio = (All cross positions' maintenance margin) / (All cross positions' margin + Unrealized profit (only calculated for profit) + Available balance)
Formula for Maintenance Margin in Isolated Margin Mode: Isolated margin ratio = Current position maintenance margin / (Current position margin + Current position unrealized P&L)
Example: Assuming the user uses 100x leverage to open a long position of 100 USDT in ETH/USDT with a maintenance margin ratio of 0.5% and a closing fee of 0.06%, the maintenance margin for the position would be:
Position maintenance margin = (Position value × Maintenance margin ratio) + Closing fee
Position value = Latest price × Position quantity Thus, (100 x 0.5%) + 100 x 0.06% = 0.56 USDT
The initial margin for the position would be:
(100 / 100) + 100 x 0.06% = 1.06 USDT
The margin ratio for this position = [0.56 / (1.06 + 0)] × 100% = 52%
Difference Between Maintenance Margin and Initial Margin:
Initial Margin: The margin required when opening a position. It is the minimum amount a user must deposit to open a position, usually higher than the maintenance margin.
Maintenance Margin: The minimum margin required to maintain a position.
Forced Liquidation Mechanism
When the account margin falls below the maintenance margin (i.e., the maintenance margin ratio is >=100%), the exchange will trigger the forced liquidation mechanism to reduce potential losses.
How to Manage Maintenance Margin:
To avoid forced liquidation, users should regularly monitor their account margin and take the following actions:
Add Margin: Deposit more funds when the account margin is insufficient.
Reduce Position: Reduce position size to lower the maintenance margin requirement.
Use Stop-Loss Orders: Set stop-loss prices to automatically sell and limit potential losses.
Reduce Leverage: Lower leverage to increase the margin tolerance.
Other Related Information
Risk Limits: The risk limit refers to different risk levels set by the exchange, with each level corresponding to different maintenance margin ratios. Users can choose a suitable risk limit based on position size and risk tolerance.
Viewing Maintenance Margin Ratio: The maintenance margin ratio can be viewed within contract information. Users should check the maintenance margin ratio of the respective contract before opening a position.
Common Questions:
When will forced liquidation be triggered? Forced liquidation will be triggered when the account margin falls below the maintenance margin requirement and the user fails to add margin in time.
How to avoid forced liquidation?
Add margin: Increase margin balance to avoid forced liquidation.
Reduce position: Decrease position size to reduce margin pressure.
Lower leverage: Adjust leverage to reduce risk.
Cancel pending orders: Cancel unfilled orders to free up margin.
Use stop-loss orders: Set stop-loss levels to automatically close positions and prevent larger losses.
Maintenance margin is a crucial concept in cryptocurrency leveraged trading, helping to ensure market stability and financial security for users. Understanding and effectively managing the maintenance margin can help users better control risks in a volatile market.