This article mainly gives a brief overview of what is margin trading, margin trading system, what is initial/maintenance margin, and how to calculate initial/maintenance margin.
What is margin
In the virtual contract market, traders only need to pay a small amount of funds at a certain rate according to the contract price as a financial guarantee for the performance of the contract, and then they can participate in the sale of the contract. This kind of funds is the virtual contract margin. Dcoin provides traders with up to 100X contract trading, and the maximum loss of the position in the position-by-position mode is only the position margin under this leverage.
What is margin trading
Margin trading is known as "margin" trading, which means that the funds occupied by each exchange are only a certain percentage of the transaction amount of the transaction. In recent years, margin trading has become more and more popular because of its high flexibility and low access standards. This type of transaction not only provides leverage, but also allows traders to buy long or short two-way transactions in the futures market, meeting the diverse needs of traders. Margin trading attracts many investors and arbitrageurs to join, providing liquidity to the platform and deepening market depth.
Margin trading includes the concepts of leverage and initial margin. For example:
Traders conduct margin trading, have 1,000 USDT and use 5 times leverage.
Initial margin = 1,000USDT
Contract value = initial margin * leverage = 5,000USDT
Initial Margin Rate = 1/Leverage = 20%
In margin trading, if the margin of the trader's position is lower than the maintenance margin, the position will be forced to liquidate.
What is the margin trading system
Leverage is a common financial transaction system, namely the margin system. The margin trading system has a certain degree of leverage. Investors do not need to pay the full amount of the contract value, but only need to pay a certain percentage of the margin to trade. Both the buyer and the seller are required to pay a margin in accordance with the regulations of the exchange where they are located. The margin is the financial guarantee for the trader to perform the contract. But on the other hand, "leverage" enlarges the amount that investors can trade, and at the same time increases the benefits and risks that investors receive.
What is entrusted margin
Entrusted margin is also called initial margin, which refers to the initial (initial) margin in leveraged trading, which is the amount of margin that a trader needs to pay when opening a position. The initial margin is equal to the order value multiplied by the initial margin ratio, which is determined by the leverage used.
How to calculate the initial margin ratio:
The way to calculate the initial margin is to divide the contract value by the leverage. Assuming 100 times leverage is used when trading contracts worth 10,000USDT, traders only need to invest 100USDT as the initial margin (10,000/100). Traders can check the maximum leverage allowed for the position through the risk limit table.
List the calculation methods of the initial margin:
Suppose a trader uses 50 times leverage to buy 10,000 BTC/USDT contracts at 5,000 USDT.
Initial margin = face value*number of contracts*average price/leverage = 0.001*10,000*5,000/50= 1,000USDT
What is maintenance margin
Maintenance margin is the minimum amount of margin required by traders to keep positions and not be forced to close out. In Dcoin, the basic value of the maintenance margin for perpetual contracts is 0.5%, that is, the basic maintenance margin required to hold a BTC position is 0.5% of the position value. When the margin amount of each position is lower than the maintenance margin level, the position will be forced Close the position.
List the calculation methods of maintenance margin:
Suppose that a trader uses 100 times leverage to buy 10,000 BTC/USDT contracts at 5,000USDT, in position 1, and the maintenance margin ratio=0.5%.
Initial margin = 0.001*10,000*5,000/100 = 500USDT
Maintenance margin = position value * maintenance margin rate = face value * number of contracts * opening price * maintenance margin rate = 0.001*10,000*5,000*0.5% = 250USDT
This means that the position will trigger a forced liquidation after suffering an unrealized loss of up to 250USDT (500USDT-250USDT). Traders need to always pay attention to the margin situation of the position.
Traders can adjust the full position and side-by-side mode on the trading page. The side-by-side mode can adjust the leverage of up to 100X. Dcoin currently does not support adjusting the leverage in the open position.