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Crypto Discussion Forum => Cryptocurrency discussions => Topic started by: CoinEx on April 22, 2022, 04:19:06 PM
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Margin is a term so important that you cannot neglect when trading futures. Yet many people would feel confused about the terms related to margin. This article will go deep into every detail of various margins in futures.
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To begin with, we need to know that, as a vital mechanism in futures trading, Margin can be regarded as a kind of deposit. When trading futures, you will be charged a small amount of money according to your Open Value and Leverage as the security deposit of your position, which is what we normally call Margin.
Initial Margin
The first is the Initial Margin, which refers to the margin required for starting a position.
Initial Margin = Open Value * Initial Margin Rate; Initial Margin Rate = 1 / Leverage * 100%.
For example, suppose you want to start a long position of 1 BTC with 10X leverage when the BTC price stands at 30,000 USDT, and the Position Amount is 1 BTC.
Open Value = Position Amount * Open Strike Price = 1*30,000=30,000 USDT
Initial Margin Rate = 1 / Leverage * 100%=1/10*100%=10%
Initial Margin = Open Value * Initial Margin Rate=30,000*10%=3,000 USDT
As such, before opening the order, you need to pay an Initial Margin of at least 3,000 USDT.
Frozen Margin
The Frozen Margin refers to the frozen Initial Margin and trading fees when the current order cannot be executed immediately. Simply put, part of the Margin needs to be frozen before the limit order is executed. The Frozen Margin is calculated as below:
Linear Contract:
(Frozen) Initial Margin = Contract Amount * Buying (or Selling) Limit Price * Initial Margin Rate
(Frozen) Trading Fees = Contract Amount * Buying (or Selling) Limit Price * Maker Rate
Inverse Contract:
(Frozen) Initial Margin = Contract Amount * Contract Value / Buying (or Selling) Limit Price * Initial Margin Rate
(Frozen) Trading Fees = Contract Amount * Contract Value / Buying (or Selling) Limit Price * Maker Rate
Here is an example. On CoinEx Exchange, you start a long position of 1 BTC with 10X leverage at the unit price of 30,000 USDT. At this moment, Bitcoin is worth 30,001 USDT, and as a result, the limit order of 30,000 USDT cannot be executed immediately. Suppose the VIP Level is LV5 and the Maker Rate is 0.0200%, and then:
(Frozen) Initial Margin = Contract Amount * Buying Limit Price * Initial Margin Rate=1*30,000*10%=3,000 USDT
(Frozen) Trading Fees = Contract Amount * Buying Limit Price * Maker Rate=1*30,000*0.0200%=6 USDT
In this case, before the limit order is executed, the Initial Margin of 3,000 USDT and Trading Fees of 6 USDT, i.e. a total of 3,006 USDT, need to be frozen as the Frozen Margin.
Maintenance Margin
The Maintenance Margin refers to the minimum amount of Margin required to keep your position open.
Maintenance Margin = Cumulative Open Value * Maintenance Margin Rate
Cumulative Open Value = ∑Cumulative Historical Open Value — ∑Cumulative Historical Liquidation Value.
According to the CoinEx website, the Maintenance Margin stands at 0.50% when the position ranges from 0 to 10 BTC. In the above case, Maintenance Margin = Open Value * Maintenance Margin Rate=30,000*0.50%=150 USDT.
Position Margin
The Position Margin refers to the amount of assets locked for the position. In isolated margin, when the Position Margin is lower than the Maintenance Margin, the position will be force-liquidated, and you can increase or decrease the Position Margin manually; in cross margin, when the Position Margin is lower than the Maintenance Margin, the Available Balance will be automatically transferred as Margin to the position.
Position Margin = Initial Margin + Increased Margin — Decreased Margin + Unrealized PNL
For example, you start a long position of 1 BTC with 10X leverage at the unit price of 30,000 USDT. You then deposit an Initial Margin of 3,000 USDT, with an Available Margin of 2,000 USDT in the account. At this point, the BTC price falls by 5%, and the Mark Price now stands at 28,500 USDT. In the meantime, no Margin is manually added.
At this point, Unrealized PNL = Position Amount * (Mark Price — Avg. Open Price) = 1*(28,500–30,000) = -1,500 USDT; Position Margin = Initial Margin + Increased Margin — Decreased Margin + Unrealized PNL = 3,000–1,500 = 1,500 USDT.