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VII. USDT Delivery Contracts: Margin
1. What is Margin?
Margin is a good-faith deposit, or an amount of capital one needs to post or deposit to hold position.
2. Margin Calculation
There are 2 margin modes available in OKEx: Cross Margin Mode and Fixed Margin Mode. For Cross Margin Mode, the Position Margin required varies with the price movements. For Fixed Margin mode, the Position Margin remains the same even the price fluctuates.
3. The relation between Margin required and Leverage.
Leverage allows traders to enter a position which is worth much more by committing only a smaller amount of money. The gain or loss is therefore, greatly magnified.
When a user opens a certain position, the required Initial Margin = Position Value / Leverage.
If the current BTC price is USDT 10,000, and a user wants to open a 10x long position of futures contract that is worth 1 BTC, the number of contracts opened is 1 BTC/0.0001BTC=10,000
Initial Margin = Position Value / Leverage = Face Value x Number of Contracts x Average Position Price / Leverage = 0.0001 BTC x 10000 x 10,000 USDT/BTC / 10= 1000USDT
4. Leverage, Initial Margin, Maintenance Margin, and Margin Ratio
Leverage: the leverage level chosen by the user when opening a position
Initial Margin Ratio: 1 / Leverage
Maintenance Margin Ratio: the lowest required margin ratio for maintaining the current open positions. When the Margin Ratio drops below the Maintenance Margin Ratio+ Liquidation fee rate, liquidation will be triggered.
Fixed Margin Mode: Margin Ratio = (Fixed Margin + UPL) / Position Value
Cross Margin Mode: Margin Ratio = (Balance + RPL + UPL) / (Position Value + Withholding Margin of Working Orders x Leverage)
Let the price of 1 BTC be USDT 10,000, a user who selected Fixed Margin Mode opens a long position of 1 BTC. The Number of contracts opened will be 10000, and the Maintenance Margin Ratio will be 1.5% (tier 3)，Liquidation Fee Rate will be 0.075%.
Initial Margin = Face Value x Number of contracts / (Average Position Price x Leverage) = 0.0001 BTC x 10000 x 10,000 USD/BTC / 10 = 1000 USDT
The Initial Margin Ratio for this position is 1 / 10 = 10%
When the price of 1 BTC falls to $9010, the UPL = Face Value x Number of contracts x Latest Mark Price – Face Value x Number of contracts x Average Position Price = 0.0001 BTC x 10000 x 9010 USD/BTC – 0.0001BTC x 100000 x 10000 USD/BTC = -990 USDT
Then the Margin Ratio = (Fixed Margin + UPL) / Average Position Price = (1000USDT – 990 BTC) / (0.0001 BTC x 10000 x 9010 USD/BTC) = 10/9010 = 0.11%, which is smaller than the required Maintenance Margin Ratio + Liquidation Fee Rate(1.575%), so liquidation will be triggered.
5. Can I add margin after opening a position?
In fixed margin mode, “auto margin” is disabled by default. User may choose to enable it by clicking the button in futures trading. When “auto margin” is enabled, in partial liquidation mode, our system will transfer funds from the futures account balance to the margin of the contract whenever its margin ratio falls below required maintenance margin ratio plus liquidation fee. Then our system will try to recoup the margin ratio to initial margin ratio as much as possible with the funds available in the futures account balance, keeping the margin ratio higher than maintenance ratio plus liquidation fee. And it will repeat this process whenever the margin ratio falls below the required maintenance margin ratio again. However, the system will not add the margin if it won’t help to avoid liquidation.
6. Can I add margin manually ?
Yes. However you may only do so in Fixed Margin Mode. Simply enter the amount of margin you would like to add for your positions to reduce liquidation risk.
7. Adjusting the Leverage of open positions
OKEx’s futures contracts allows leverage level adjustment for open positions. If a user who wants to increase the leverage level, our system will check whether it has reached the tier’s limit before allowing the adjustment. After the adjustment, the required maintenance margin will be lowered.