2. The Relationship Between Margin and Leverage
Leverage is a common financial trading system that allows investors to control larger amounts of capital with less money, amplifying both profit and risk.
Example: Suppose the latest transaction price of BTC is $10,000, and the user uses 10x leverage to open 1,000 long perpetual contracts:
Required margin = Contract multiplier × Number of contracts × Latest transaction price / Leverage = 0.0001 × 1000 × 10000 / 10 = 100 USDT
Note: While high leverage can bring high profits, it also carries high risk. Please fully understand the risks before using it.
3. The Relationship Between Leverage, Initial Margin Rate, Maintenance Margin Rate, and Margin Ratio
- Leverage: The leverage multiplier chosen by the user when opening a position.
- Initial margin rate: = 1 / Leverage
- Position margin: = Contract multiplier × Position size × Average transaction price / Leverage
- Maintenance margin rate: The minimum margin rate required by the user to maintain a position. Different maintenance margin rates affect the liquidation price. If the market price reaches the liquidation price, a margin reduction or forced liquidation may occur. Liquidation price calculation:
- Long position liquidation price = (Position size × Contract multiplier × Opening average price - Initial margin + Fees - Additional margin) / ((1 - Maintenance margin rate) × Contract multiplier × Position size)
- Short position liquidation price = (Position size × Contract multiplier × Opening average price + Initial margin - Fees + Additional margin) / ((1 + Maintenance margin rate) × Contract multiplier × Position size)
Margin ratio = (Position margin + Unrealized profit and loss) / Current position value Where, Current position value = Position size × Contract multiplier × Latest transaction price
Example: Suppose the current BTC price is $10,000, the user uses 10x leverage to open 1,000 long contracts, the maintenance margin rate is 0.5%, the fees are 0, and the additional margin is 0, the calculation is as follows: Initial margin rate = 1 / 10 = 10% Margin = Contract multiplier × Number of contracts × Latest transaction price / Leverage = 0.0001 × 1000 × 10000 / 10 = 100 USDT
Liquidation price calculation: Liquidation price = (1000 × 0.0001 × 10000 - 100) / ((1 - 0.5%) × 0.0001 × 1000) = 9045.23 When the BTC price drops to $9045, the unrealized profit and loss is: Unrealized PnL = 0.0001 × 9045 × 1000 - 0.0001 × 10000 × 1000 = -95.5 USDT At this point, the margin ratio is: Margin ratio = (100 - 95.5) / (9045 × 0.0001 × 1000) = 0.497% Although the margin ratio is below 0.5%, the position remains safe as the price has not reached the liquidation price.
4. Manual Margin Addition Users can manually increase their margin to precisely control the risk. After increasing the margin, the leverage multiplier and liquidation price will be adjusted accordingly.
Thank you for choosing Echobit! We will continue to provide you with an efficient and secure trading experience!
Echobit Team