Isolated Margin means that in the Isolated Margin mode when placing an order, a certain margin will be locked as the maximum loss of the position. When the price fluctuates greatly and is liquidated by the system, other margins in the contract account that are not occupied by the position It will change, and the loss will be controlled within a certain range.
The margin required by investors when opening a position will be used as the fixed margin of the contract. When using the isolated margin mode, users can hold positions in two directions, and the risks of short positions and long positions are calculated independently, and the margin and income of each contract's two-way positions will be calculated independently.
Advantages of the isolated-margin mode: the user will only lose the position margin when liquidating the position, that is to say, the amount of the position margin is the user's maximum loss. Only the margin amount of the position held in this direction will be lost, and other funds in the contract account will not be affected.
In the cross-position mode, all the funds in the personal account can be used as the margin of the position, so that the ability to resist risks is stronger, and sufficient funds can ensure that the probability of the account being liquidated is reduced. The probability of being forced to close a full position is small, and once the price fluctuates greatly, the loss will be greater.
All the balances transferred by investors to the contract account, and the profit and loss generated by all contracts will be used as the position margin of the contract.
When the cross-margin mode is adopted, the risks and benefits of all positions held in the account will be calculated together. When the position loss exceeds the account balance, the position will be liquidated.
Advantages of the cross-position mode: the account has a strong ability to bear losses, and is easy to operate and calculate positions, so it is often used for hedging and quantitative transactions.
compare the two margin
The cross-margin mode is relatively difficult to liquidate under low-leverage and volatile market conditions, but when encountering major market conditions or some uncontrollable factors that cannot be traded, it is very likely that all funds in the account will return to zero.
The isolated-margin mode is more flexible than the cross-margin mode, but it needs to strictly control the distance between the forced liquidation price and the marked price, otherwise, a single position can easily be liquidated and cause losses.
A and B use 2,000 USDT at the same time, 10 times leverage to do long BTC/USDT contracts,
A uses the isolated margin mode, occupying 1,000 USDT margin, and B uses the cross margin mode;
Suppose A's liquidation price is 8,000 USDT, and B's liquidation price is 7,000 USDT;
If BTC suddenly drops to 8,000 USDT, account A loses 1,000 USDT margin and is forced to close the position, losing 1,000 USDT and the remaining 1,000 USDT.
B uses the cross-margin mode, and after losing 1,000 USDT, the long position is still there. If the price rebounds at this time, B may turn losses into profits, but if the price continues to fall, he may lose all 2,000 USDT.
Example: A user starts the USDT-Margin Perpetual Contract transaction of BTC. The user’s principal is 300 USDT, and the face value of the BTC contract is 0.001BTC. If the user needs to open 1,000 long positions at the price of 20,000 USDT, the user’s multiple is 100 times, how much USDT the user needs as a margin
Margin balance = 0.001 * 1000 *20000 /100 = 200 USDT
Therefore, the user needs a margin of 200 USDT to open this position to provide a guarantee for the position.
Analysis of the underlying principles:
1. Face value * number of contracts, which refers to the calculation of the underlying currency value of the user's position
2. Convert the calculated target currency value into USDT
3. After using leverage, how much USDT is needed as a margin to help us open a position?
Mark Price: the mark price obtained after taking the weighted average calculation of contracts and spot prices on multiple platforms.
Purpose: To ensure that the user's position will not be unnecessarily liquidated.
Function: When the margin rate of the user's position is calculated when the margin rate is calculated by the latest price, and the market price is less than or equal to 100%, the liquidation will be triggered.
Example: A user holds a long position. At this time, his liquidation price is 1,500 USDT. At 21:00 that night, the latest price fell below 1,500 USDT and reached 1,450 USDT. However, the mark price used is 1,510USDT. Since the margin rate calculated using the mark price has not yet reached 100%, the user will not force a liquidation.
Then, at 03:00 the next day, the latest price rose to 1,490USDT, and the marked price continued to drop to 1499, then the system judged that the margin rate calculated using the latest price and the marked price had reached 100%, so the explosion was triggered.
User perception: My long position was not liquidated when the latest price was 1,450 USDT, but it was liquidated when the price rose to 1,490.
Margin rate formula
Cross Margin Rate = (Account Balance + ∑ Profit)/ ∑(Maintenance Margin + Handling Fee)
Isolated Margin Rate = (Margin Balance + Profit)/ (Maintenance Margin + Handling Fee)
Analysis: After dividing the total value (equity) of the user's balance + total profit and loss by the maintenance margin required for the minimum position, whether it can exceed 100%, and if it does not exceed, it will be liquidated.