First, let’s recap on margin trading. In margin trading, traders do not need to pay full amount to buy or sell the assets, but a small amount will be reserved as margin. Margin trading increases the capacity to buy/sell more and to increase investment P&L. You may refer What is Leverage for more information on margin trading.
How much required to open a position?
In margin trading, the minimum required margin to open a position is known as the Initial Margin, which is determined by the position size and the initial margin rate.
Initial Margin = (Quantity of Contract / Order Price) x Initial Margin Rate
Initial margin rate is different under Cross Margin Mode and Isolated Margin Mode.
Isolated Margin Mode: The initial margin is determined by the leverage setting.
Ann intends to buy 100,000 BTCUSD contracts at a market price of $9,000, using 50x leverage. How much does she need to open a position?
50x Leverage: Initial Margin = 100,000 / 9,000 x (1/50) = 0.222 BTC
Different Initial Margin by different leverage setting:
75x Leverage: Initial Margin =100,000/9,000 × (1/75) = 0.148BTC
25x Leverage: Initial Margin = 100,000/9,000 × (1/25) = 0.444 BTC
Thus, the higher the leverage, the lower the initial margin.
Cross Margin Mode: Initial margin rate is determined by the risk limit (Inverse Contract) or the margin tier (USDT Contract).
Take BTCUSD for example:
The higher the risk limit/margin tier, the higher the initial margin rate.
If Ann choses the Cross Margin Mode with the default lowest risk limit (150 BTC), it will only reserves 1% margin as initial margin, which is 0.11 BTC ( 100,000 / 9,000 x 1%).
How much margin to maintain a position?
The minimum margin to main a position is known as the Maintenance Margin, which is determined by the position size and the maintenance margin rate. A position will be liquidated when position margin reaches the maintenance margin level.
Maintenance Margin = (Quantity of Contract / Entry Price) x Maintenance Margin Rate
The maintenance margin rate is determined by either the risk limit (Inverse Contract) or the margin tier (USDT Contract), regardless of Cross Margin or Isolated Margin Mode.
Take BTCUSD for instance:
Revisiting Ann’s case, how much margin is required to keep her position? Whether she uses isolated margin (with 50x leverage) or cross margin, the maintenance margin rate is always 0.5% as long as she chooses the default risk limit (150 BTC).
Maintenance Margin = (100,000 / 9,000) x 0.5% = 0.056 BTC
Under the Isolated Margin Mode, positions will be liquidated if the loss reaches the difference between the initial margin and maintenance margin, which is 0.166 BTC (0.222 BTC – 0.056 BTC). A Cross Margin position instead will may more margin from the account available balance to cover the loss.
Ann may replenish extra margin or close her position to avoid liquidation before her position fall to the maintenance margin level.
How to adjust the margin for isolated position?
1. Increase the initial margin by lowering the leverage under the order zone.
2. Increase the initial margin manually by editing Initial Margin under position zone.