In margin trading, traders don’t pay in full to buy or sell the assets, but rather reserve a small amount of margin as collateral. Margin trading accelerates trading profit and loss. You may refer to What is Leverage for more information on margin trading.
How much margin to open a position?
In margin trading, the minimum required margin to open a position is known as 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 $9,000. How much is the initial margin?
- 25x Leverage: Initial Margin = 100,000/9,000 × (1/25) = 0.444 BTC
- 50x Leverage: Initial Margin = 100,000 / 9,000 x (1/50) = 0.222 BTC
- 75x Leverage: Initial Margin =100,000/9,000 × (1/75) = 0.148BTC
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 inverse perpetual contract for example:
The higher the risk limit/margin tier, the higher the initial margin rate.
If Ann trades on Cross Margin Mode at the default lowest risk limit (150 BTC), the initial margin rate is 1%.
Initial Margin =100,000 / 9,000 x 1% = 0.11 BTC
How much margin to maintain a position?
The minimum margin to maintain 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 drops to 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, her maintenance margin rate is 0.5% if she chooses the default risk limit (150 BTC).
Maintenance Margin = (100,000 / 9,000) x 0.5% = 0.056 BTC
An isolated margin position will be liquidated if the loss reaches the difference between the initial margin and maintenance margin. Ann’s 25x leverage position will be liquidated if the loss is more than 0.388 BTC = 0.444 BTC – 0.056 BTC. Ann may replenish extra margin or close her position to avoid liquidation.
A Cross Margin position will automatically draw more margin from the account available balance to cover the loss and is thus less likely to be liquidated.
How to adjust the margin for an isolated position?
1. Increase the initial margin by lowering the leverage under the order zone.
2. Adjust the initial margin manually under position zone.