When we open a position in contracts, we need to add margin, which is used and locked by the position. There are two concepts of margin: initial margin and maintenance margin. The initial margin refers to the margin required when opening a position, while the maintenance margin is the minimum margin level required to maintain the current position.
Currently, there are two types of margin modes for contracts: one is full position and the other is isolated position.
In full position mode, all available balance in the user's contract account can be used as margin for the current position. When the position margin decreases to the maintenance margin, the system will automatically add margin from the available balance in the contract account to the initial margin. If the total available margin still does not reach the maintenance margin level after the addition, no more margin will be added, and the liquidation process will be executed.
Therefore, when using full position mode, the risks and returns of all positions in the contract account will be calculated together, and liquidation will only occur when the position loss exceeds the balance of the contract account.
In isolated position mode, the user's position margin is only used for the current position. Unless the user manually adds margin, the system will not add margin. When this position cannot reach the maintenance margin level, the system will execute the liquidation process. Therefore, in isolated position mode, the user's liquidation will only result in a loss of the current position margin; that is, the amount of position margin is the user's maximum loss and will not affect other funds in the contract account.
Let’s illustrate with an example:
Assume users A and B each have 2000U in their contract accounts. They both put out 1000U to open a long BTC/USDT contract with 10x leverage, where A uses isolated position mode and B uses full position mode, with an initial margin of 1000U:
Assuming the BTC price drops to the liquidation price, user A incurs a loss of 1000U margin and is forcibly liquidated, resulting in a loss of 1000U, with 1000U remaining in the contract account.
If B uses full position mode and incurs a loss of 1000U, the system automatically adds margin, and their long position remains. At this point, if the BTC price rebounds, B may turn their loss into a profit, but if the price continues to fall, they could lose all 2000U in their contract account.
In general, the advantage of choosing full position mode is that the user’s contract account has a stronger ability to withstand losses and is easier to operate and calculate positions. Although full position mode is relatively less prone to liquidation under low leverage and volatile markets, encountering significant market events or uncontrollable factors that prevent trading could lead to the entire account balance being wiped out.
In isolated position mode, the user needs to manually add margin and strictly control the distance between the liquidation price and the marked price; otherwise, a single position is prone to liquidation and loss.
In our contract trading, it is generally assumed that the user chooses full position mode. If you need to switch to isolated position mode, you can do so manually by pressing a button.
Both full position and isolated position modes can adjust leverage, with the maximum leverage for both modes being 125 times. However, it is important to note that when a user has open orders, they cannot switch between full position and isolated position modes, and they also cannot change leverage while having open orders.
So how is the position margin calculated?
Here is a formula for reference:
Position margin = Opening value / Leverage (i.e., initial margin) + Additional margin - Reduced margin + Unrealized profit and loss
Additionally, the risk of liquidation is calculated based on the position margin and the current maintenance margin required for the position. The larger the value, the higher the risk. When the risk reaches 80%, the platform will issue a liquidation warning notification, and exceeding 100% will trigger the liquidation process.
Among them, the risk of liquidation in isolated position = Maintenance margin / Position margin * 100%
The risk of liquidation in full position = Maintenance margin / (Available balance + Position margin) * 100%
Finally, rookie Xiao Yang wishes everyone happy investing and lots of profits!