Margin Trading Terminology and Calculation Formulas Explained

This guide provides a detailed explanation of key terms and formulas used in margin trading for cryptocurrency pairs.

Understanding Margin Trading Basics

To begin margin trading, navigate to the "Leverage Trading" option on your exchange platform's trading page. This will direct you to the cryptocurrency margin trading interface.

Key Margin Trading Concepts

1. Asset Management

Coin Equity:
The total value of a specific cryptocurrency asset in your account, combining:

• Cross-margin account balances
• Isolated margin positions

Available Assets:
The portion of cryptocurrency in your margin account that's available for:

• Placing new orders
• Includes both deposited funds and borrowed amounts

Frozen Assets:
Funds temporarily unavailable for trading, typically:

• Currently used in open orders
• Pending execution in the order book

2. Margin Ratio & Liquidation

Margin Ratio:
A critical risk assessment metric indicating your account's liquidation risk level.

Risk Thresholds:

• Warning Level (300%):
  When your position margin ratio falls below 300%, the system issues a reduction warning.
  Note: Exchanges may adjust this parameter based on market conditions.

• Liquidation Level (100%):
  Triggers automatic position reduction when breached:

  1. Cancels opposing orders
  2. Transfers part/all of your leveraged position to liquidation protocols

Liquidation Process:
Occurs when margin ratio ≤ 100%:

• System automatically closes positions
• Uses account assets to repay borrowed funds

Estimated Liquidation Price:
The calculated price point where:

• Cross-margin positions meet liquidation criteria
• Accounts for required collateral percentages
• Factors market volatility and asset depreciation

Liquidation Penalty Fee:
Charged post-liquidation to:

• Cover system liquidation costs
• Contribute to risk reserve funds
• Mitigate potential platform losses from liquidations

Margin Trading Formulas

Key Calculations

1. Margin Ratio Formula:

   Margin Ratio = (Total Account Value / Total Borrowed Value) × 100%

2. Liquidation Price Estimation:

   Liquidation Price = (Borrowed Amount × (1 + Interest Rate)) / (Collateral Amount × Maintenance Margin Requirement)

FAQ Section

Q: How often is margin ratio calculated?
A: Exchanges typically calculate margin ratios in real-time, updating with each price movement.

Q: Can I prevent liquidation?
A: Yes, by:

• Adding more collateral
• Reducing position size
• Closing positions before reaching critical levels

Q: What happens if my liquidation fails to cover debts?
A: Platforms use risk reserves to cover gaps, but in extreme cases, users may incur additional losses.

Q: Is margin trading suitable for beginners?
A: Not recommended—requires understanding of advanced risk management techniques.

Q: How are liquidation prices affected by market volatility?
A: High volatility → Wider price gaps → Potentially more severe liquidations.

Q: Can I customize my margin ratio alerts?
A: Some platforms allow setting custom alerts above the 300% warning level.

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