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 * price / leverage
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, a user intends to enter 1,000 contracts into a long position with a leverage of 10.
The quantity of contracts opened = 1,000 contracts.
Margin needed = Contract Multiplier * Quantity* BTC price / Leverage =0.0001*1000*10000 / (10) = 100 USDT
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 = Contract Multiplier * Quantity * 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) = (Position Size (Num of contracts) * Contract Multiplier * Average Open Price-Initial Margin)/((1-MMR) * Contract Multiplier * Position Size)
Est. Liquidation Price (Short) = (Position Size (Num of contracts) * Contract Multiplier * Average Open Price+ Initial Margin)/((1+MMR) * Contract Multiplier * Position Size)
Margin Rate = (Initial Margin + Unrealized PnL) / Open Value = (Initial Margin + Unrealized PnL) / (Position * Contract Multiplier * Average Price);
Example:
Suppose the latest contract price is $10,000. One user enters 1000 contracts (Tier 1 Risk Limit) LONG with a 10X leverage. The maintenance margin rate requirement for this position is 0.5%.
At this moment, the user’s initial margin Rate = 1/10 = 10%
Margin = Contract Multiplier * Quantity* Average Open Price / Leverage = 0.0001*1000*10000/10 = 100 USDT
Est. Liquidation Price = (Position Size (Number of Contracts) * Contract Multiplier * Average Open Price-Initial Margin)/((1-MMR) * Contract Multiplier * Position Size) = (1000*0.0001*10000-100)/((1-0.5%)*0.0001*1000)= $9045.2261
If the latest contract price plunges to $9045 and the underlying index price is $9055.5
Unrealized PnL = Contract Multiplier * Quantity * Latest Price – Contract Multiplier * Quantity * Average Open Price = 0.0001 * 9045 * 1000 - 0.0001 * 10000 * 1000 = -95.5
Then the Margin Rate = (Margin + Unrealized PnL) / Position Value.
= ( 100-95.5 ) / ( 9045 * 0.0001 * 1000 ) = 0.49748% < 0.5%
Since the index price 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.