This article provides a brief overview of what margin trading is, the margin trading system, what is starting/maintaining margin, and how starting/maintaining margin is calculated.

What is Margin

In the virtual contract market, a trader can participate in the purchase and sale of a contract by paying a small amount of money as financial security for the fulfillment of the contract based on a certain percentage of the contract price. This money is the virtual contract margin. MEME offers traders to trade contracts up to 100X, and the maximum loss of a position in position-by-position mode is only the margin of the position under this leverage.

What is Margin Trading

Margin trading means that the amount of money taken in each transaction is only a percentage of the underlying transaction amount. In recent years, margin trading has become increasingly popular because of its high flexibility and low entry criteria. Not only does this type of trading offer leverage, it also allows traders to buy or sell long or short in both directions, often in the futures market, meeting the diverse needs of traders. Margin trading attracts many investors and arbitrageurs, providing liquidity to the platform and deepening market depth.

Margin trading includes the concepts of leverage and starting margin. Example:

A trader trading on margin has 1,000 USD and uses 5 times leverage.

Initial margin = 1,000 USD

Contract Value = Initial Margin * Leverage = 5,000USD

起Initial margin rate = 1/number of leverage = 20%

In margin trading, if the trader's position is below the maintenance margin, the position will be forced to be closed.

What is the Margin Trading System

Leverage is a common financial trading system, known as the margin system. The margin trading system is leveraged in that the investor does not need to pay the full amount of the contract value, but only a percentage of the margin in order to trade. Both the buyer and the seller are required to pay the margin according to the rules of their exchange, which is a financial guarantee for the trader to fulfill the contract. But on the other hand, the "leverage" allows the investor to trade with a larger amount of money, but at the same time, the investor gains and takes more risk.

What is Commissioned Margin?

Commissioned margin is also known as starting margin, which is the amount of margin a trader is required to pay when opening a position in leveraged trading. The starting margin is equal to the value of the order multiplied by the starting margin percentage, which is determined by the amount of leverage used.

How the starting margin percentage is calculated:

The starting margin is calculated by dividing the value of the contract by the leverage. Assuming that 100 times leverage is used when trading a contract worth 10,000 USD, a trader would only need to invest 100 USD as starting margin (10,000/100). Traders can view the maximum leverage allowed for a position in the Risk Limits table.

An example of how the starting margin is calculated:

Suppose a trader uses 50x leverage to buy 10 BTC perpetual contracts at 5,000USD.

Starting margin = number of orders placed * average opening price / leverage = 10*5,000/50 = 1,000USD

What is Maintenance Margin

Maintenance margin is the minimum amount of margin required for a trader to retain a position without being forced to liquidate it. In MEME, the base maintenance margin for perpetual contracts is 0.5%, i.e. the base maintenance margin required to hold a BTC position is 0.5% of the value of the position, and when the account equity is less than or equal to the maintenance margin, the position will be forced to close.

To illustrate how maintenance margin is calculated:

Suppose a trader buys 10 BTC perpetual contracts at 5,000USD using 100x leverage and the maintenance margin rate = 0.5%.

Initial margin = 10*5,000/100= 500USD

Maintenance Margin = Position Value * Maintenance Margin Rate = Number of Orders Placed * Opening Price * Maintenance Margin Rate = 105,0000.5% = 250USD

This means that the position will be subject to a forced liquidation after suffering an unrealized loss of up to 250USD (500USD - 250USD). Traders should always keep an eye on the margin status of their positions.