When doing contract trading, you have to pay a margin when opening a position. This money is like buying insurance for your position and needs to be kept there as a backup.
There are two key points in the margin: initial margin and maintenance margin.
The initial margin is the money you have to pay when you first open a position; the maintenance margin is the bottom line money you have to keep to prevent your position from collapsing.
Simply put, there are two ways to play with margin: full position and position by position.
The full-position mode means that all the money in your contract account will serve as the backing for your position.
If the position margin is reduced to the maintenance margin, the system will automatically help you take some money out of your account to make up for it until it reaches the initial margin.
If you can't even cover this, then you can only force a liquidation. In full margin mode, the profits and losses of all positions are counted together; only when all the money in the account is lost will the liquidation occur.
Isolated margin mode.
This means that the position margin only concerns itself; if it is lost, you have to find a way to manage it yourself; the system will not help you. If the position margin is not enough to maintain the margin, it will have to be forcibly liquidated.
At this point, you only lose the margin of the current position; the other money in the account is still safe.
For a simple example, both A and B have 2000U and both use 1000U to go long on the BTC/USDT contract with 10x leverage.
A chose isolated margin, while B chose cross margin.
If the BTC price drops to the liquidation price, A will lose the 1000U margin and then be liquidated, leaving 1000U in the account.
B, on the other hand, chose cross margin, and the system will automatically help him cover the margin, so his position remains. If the BTC price rebounds, he can turn losses into profits; if it continues to fall, he might have to risk all 2000U in his account.
Personally, I think the advantage of full margin mode is its strong loss resistance and the ease of calculating positions. But if there is a major market movement or a trading halt, all the money in the account might be lost.
In isolated margin mode, you must keep an eye on the margin and calculate the distance between the liquidation price and the mark price; otherwise, the position is prone to liquidation.
In CoinEx contract trading, the default is cross margin mode. Both modes can adjust leverage, with a maximum adjustment of up to 100 times.
However, if you place a limit order, you cannot switch back and forth between cross and isolated margins, nor can you change the leverage.
How is the margin calculated?
Actually, there’s a formula: Position Margin = Opening Value / Leverage + Additional Margin - Reduced Margin + Unrealized P&L.
The risk of liquidation is assessed by the ratio of your position margin to the maintenance margin; the greater the ratio, the higher the risk.
When the risk reaches 70%, CoinEx will notify you; if it exceeds 100%, liquidation will occur.
The risk of liquidation in isolated margin is determined by the ratio of maintenance margin to position margin; the risk of liquidation in cross margin is determined by the ratio of maintenance margin to the total available balance in the account plus position margin.
With this explanation, everyone should have a clearer understanding of the margin in contract trading!
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