Introduction to Contract Margin and Leverage
1. Contract Margin
A certain percentage of funds as financial collateral is required for USDⓈ perpetual Futures, that is, Margin.
Collateral mode refers to the composition of the margin. FameEX offers single-currency margin mode and multi-currency margin mode.
1.1 Single-currency margin mode
Only the corresponding pricing currency can be used as a margin for transactions in the trading areas. For example, only USDT tokens can be used as a margin for the USDT Perpetual Futures trading, and only USDC tokens can be used as a margin for the USDC Perpetual Futures trading. It supports both cross-margin and isolated-margin positions.
1.2 Multi-currency margin mode
All currencies supported by the platform can be used as margins for contract trading, but only the cross-margin mode is supported. Under this mode, users can use all assets in the derivatives wallet as contract margin.
In the multi-currency margin mode, the user can transfer the assets to a derivatives account as a margin, and the margin currency is converted into USD according to the spot index price. If there are profits generated during the trading, the profitable assets are divided into trading areas, that is, the profitable asset in the USDT Perpetual Futures trading is USDT; while it in the USDC trading area is USDC. However, if there is a loss generated during the trading, the order of deduction will also vary according to the trading area.
USDT Perpetual: USDT > USDC > BTC > ETH
USDC Perpetual: USDC > USDT > BTC > ETH
Under the multi-currency margin mode, cryptos supported as margins are: USDT, USDC, BTC, ETH
• It is unavailable for switching to the multi-currency margin mode if there are isolated orders or positions;
• If the user does not have an isolated margin order and position, but there is a contract trading pair under the isolated margin, the user allows switching to the multi-currency margin only after switching the position to the cross mode;
• The single-currency margin mode supports cross margin and isolated margin modes; while the multi-currency margin mode only supports cross margin mode.
The margin mode is risk management for the proportion of positions held when you make an investment. You may select the most suitable margin mode according to various factors such as capital scale, market volatility, and risk acceptance. In derivatives trading, the margin mode is divided into the isolated margin and cross margin.
1.1 Isolated Margin Mode
The isolated margin mode means that the indicators of each position are calculated independently and do not affect each other. In the isolated margin mode, the margin can be allocated separately for the specified position. When a position is liquidated, it will only affect the margin of this position, and the margin of other positions will not be affected.
For example, User A holds BTCUSDT and ETHUSDT positions under the isolated position mode; if the risk rate of the BTCUSDT position reaches 100% and gets liquidation, then the full margin of the BTCUSDT position will be cleared, however, ETHUSDT position will not be affected.
1.2 Cross Margin Mode
The cross margin mode means that all positions share the margin in the derivatives account. In the cross margin mode, if a certain position gets liquidated, it may lead to insufficient margin for other positions, resulting in chain-liquidated reactions.
For Example, User B holds both BTC and ETH positions in the USDC Perpetual Futures under the cross-margin mode. Once the risk rate of the USDC Perpetual Futures reaches 100% and triggers liquidation, both BTC and ETH positions may trigger liquidations.
Margin = Position Size * Average Price / Leverage
For example, User C opened a Long BTCUSDT position with 0.1 BTC at 30,000 USDT, and selected 10x leverage. The position margin is: 0.1 * 30,000 / 10 = 300 USDT
Frozen Margin= Order Quantity * Order Price / Leverage
For example, the market price of ETHUSDT perpetual is 1850 USDT, and User E hopes to sell it when the price rises to 1900 USDT, so User E sold 2 ETH at the limit price of 1900 USDT, and selected 5x leverage. At this point, The margin will be frozen as the limit order is unfilled, and the frozen margin is: 2 * 1900 / 5 = 760 USDT
It is the minimum margin required by the user to maintain the current position. Once the margin balance is less than or equal to the maintenance margin, a liquidation or forced deleveraging will be triggered.
Maintenance Margin = Position Value * Maintenance Margin Ratio
2. Contract Leverage
FameEX supports up to 100x leverage for contract trading. Leverage is required before opening a position. The higher the leverage you choose, the less margin you need, but the higher the risk of your position. Please assess risks carefully and choose appropriate leverage for trading.
After opening a position, the user can adjust the current leverage of the position if there are no open orders.
For example, User A holds a BTCUSDT position with 0.2 BTC, the market price is 30,000 USDT, and selects 5x leverage, then the position margin is: 0.2 * 30,000 / 5 = 1,200 USDT
At this time, there are no open orders, if User A adjusts the leverage from 5x to 20x, then the position margin is: 0.2 * 30000 / 20 = 300 USDT
1.1 The leverage cannot be adjusted if there are any open orders in the current contract;
1.2 Under the cross margin mode, if the available margin is less than 0 due to switching leverage, the switch cannot be made; under the isolated margin mode, the leverage cannot be adjusted to lower than the current leverage if there is a position;
1.3 Under the one-way position, the leverage of the cross and isolated margin is adjusted uniformly; under the hedge position mode, the leverage of the long and short position in the cross mode is adjusted uniformly, while under the isolated position mode, the leverage can be set separately;
1.4 Leverage adjustment will affect the position margin, PnL% and other data, but it will not affect the realized PnL.