Relationship Between Leverage and Margin
Margin refers to the principal required by users to open a position in futures trading. Due to the high leverage nature of futures contracts, users can trade larger positions with the same principal. Leverage has the characteristic of amplifying both profits and losses.
- Higher Leverage: The higher the leverage, the smaller the margin required. With the same balance, traders can trade more contracts, amplifying potential profits. However, the liquidation price will be closer to the opening price, meaning there is less room for losses, and positions are more likely to be liquidated.
- Lower Leverage: The lower leverage, the larger the margin required. With the same balance, traders can trade fewer contracts, which may limit profit potential. However, the liquidation price will be farther from the opening price, providing more room for losses and reducing the likelihood of liquidation.
Isolated Margin
In Isolated Margin mode, the margin for a position is separate from the user's account balance. The initial margin is the starting margin, which can be adjusted by changing leverage, risk limits, or adding/withdrawing margin. When the margin balance equals or falls below the maintenance margin, forced liquidation will be triggered. In this case, the margin balance of the position represents the maximum loss the user will bear.
Isolated Margin Calculation Formula:
Initial Isolated Margin = (Position Value / Leverage) + Liquidation Fee
Example:
User A has a position value of 100 USDT with 100x leverage in Isolated Margin mode. The margin required is:
100 / 100 + 100 × 0.075% = 1.075 USDT
For instructions on adjusting margin modes, refer to: How to Adjust Margin Mode, Leverage, and Position Mode.
Cross Margin
In Cross Margin mode, all balances in the user's account are used as margin. Users can set multiple contract positions to Cross Margin mode, and all positions in Cross Margin mode share the account balance as margin. However, unrealized profits in profitable positions cannot be used as margin for other positions. In this margin mode, forced liquidation will be triggered when the net asset value is insufficient to meet the maintenance margin requirement. In this case, the user will lose all balances.
Cross Margin Calculation Formula:
Initial Cross Margin = Position Value × Initial Margin Ratio + Liquidation Fee
If there is unrealized loss, the margin in Cross Margin mode must include the absolute value of the unrealized loss (unrealized profits cannot be used as margin to open positions).
Example:
User B has a position value of 100 USDT in Cross Margin mode, with an initial margin ratio of 1%, a balance of 200 USDT, and an unrealized profit of +10 USDT. The margin required is:
100 × 1% + 100 × 0.075% = 1.075 USDT
Thus, the position displays a margin of 1.075 USDT, while the actual margin for the position is 200 USDT.
Important Notes
- In one-way positions, users can switch between Isolated and Cross Margin modes at any time while holding a position. In two-way positions, switching between Isolated and Cross Margin modes is not allowed while holding a position. For instructions on switching between one-way/two-way position modes, refer to: How to Adjust Margin Mode, Leverage, and Position Mode.
- In Cross Margin mode, users cannot manually adjust leverage. The actual leverage is related to margin, position value, and unrealized profits/losses.
- Changing leverage does not affect profits or losses. When the leverage of a position is adjusted, the initial margin amount will change, but the position size will remain the same. As mentioned above, the advantage of using high leverage is that traders can open larger positions with the same margin amount. Therefore, unrealized profits and losses will increase as the position size increases.
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