1. What is Margin?
Margin is a good-faith deposit or the amount of capital one needs to post or deposit to hold the position.
Position Margin = Initial Margin + added / removed margin
Where:
Initial Margin = multiplier * quantity / ( leverage * price )
2. Relationship between margin and leverage
Leverage allows traders to enter a position that is worth much more by committing only a little amount of money. The gain or loss is, therefore, greatly magnified.
Example:
Suppose BTC is currently trading at $10,000, and a user intends to enter into a position worth 1 BTC with a leverage of 10.
The quantity of contracts opened = 1 BTC * 10, 000 USDT per BTC / Multiplier = 1 * 10,000 / 1 = 10,000
Margin needed = Multiplier / ( BTC price * Leverage ) = 1 * 10,000 / ( 10,000 * 10 ) = 0.1 BTC
Reminder: Higher leverage indicates a higher return, but also higher risks. Please make sure you understand the risk before you use high leverage.
3. Leverage, Initial Margin, Maintenance Margin, and Margin Rate
Leverage: The leverage user chose to open a position.
Initial Margin Rate: 1 / Leverage
Initial Margin = Multiplier / ( Average Open Price * Leverage )
Maintenance Margin Rate (MMR): The minimum margin rate used to maintain the current position. Different maintenance margin rates may result in different liquidation prices. If the underlying index price reaches the liquidation price, the deleverage/liquidation procedure will be triggered.
The Maintenance Margin Rate is used to calculate the liquidation price,
Est. Liquidation Price (Long) = (1 + MMR) * Position * Multiplier / ((Position * Multiplier / Average Price) + Position Margin)
Est. Liquidation Price (Short) = (1 - MMR) * Position * Multiplier / ((Position * Multiplier / Average Price) - Position Margin)
Margin Rate = (Initial Margin + Unrealized PnL) / Position Value = (Initial Margin + Unrealized PnL) / (Position * Multiplier / Last Price)
Example:
Suppose the latest contract price is $10,000. One user enters into a 10X leverage LONG position worth 1 BTC, which equals 10,000 contracts (Tier 1 Risk Limit). The maintenance margin rate requirement for this position is 0.5%.
At this moment, user’s Initial margin Rate = 1/10 = 10%
Margin = Multiplier * Quantity / (Average Open Price * Leverage)= 10,000 * 1 / (10,000 * 10) = 0.1 BTC
Est. Liquidation Price = (1 + MMR) * Position * Multiplier / ((Position * Multiplier / Average Price) + Position Margin) = (1+0.5%) * 10000 * 1 / ((10000 * 1 / 10000)) + 0.1) = $9136.36
If the latest contract price plunges to $9135 and the underlying index price is $9138
Unrealized PnL = Multiplier * Quantity / Average Price – Multiplier * Quantity / Latest Price
= 1 * 10000 / 10000 - 1 * 10000 / 9135 = -0.09469
Then the Margin Rate = (Margin + Unrealized PnL) / Position Value
= (0.1 - 0.09469) / (1 * 10000 / 913) = 0.00485 = 0.485%
Since the index did not reach the liquidation price, the position will not be deleveraged/liquidated.
4. Changing the margin on your position
Users can increase or decrease the margin in all positions, this will help manage risks. Leverage and liquidation prices will change automatically after the changes are made.