What is margin in expiry futures contracts?
1. What is margin?
In the crypto futures market, margin is a percentage of the value of the futures contract that traders place in an account to open a position.
2. How is margin calculated?
OKX offers two types of margin, cross margin and isolated margin.
In Cross Margin mode, the entire margin balance is shared across open positions to avoid liquidation.
For crypto-margined contracts:
Initial Margin = Contract Size*|Number of Contracts|*Multiplier / (Mark Price*Leverage)
For USDT-margined contracts:
Initial Margin = Contract Size*|Number of Contracts|*Multiplier*Mark Price / Leverage
Isolated Margin is the margin balance allocated to an individual position, allowing traders to manage their risk on each position.
For crypto-margined contracts:
Initial Margin = Contract Size*|Number of Contracts|*Multiplier / (Average Price of Open Positions*Leverage)
For USDT-margined contracts:
Initial Margin = Contract Size*|Number of Contracts|*Multiplier*Average Price of Open Positions / Leverage
3. Margin vs. Leverage
Leverage is a type of trading mechanism that investors use to trade with more capital than they currently own. It amplifies potential returns and the risk they take.
In Cross Margin mode, when the user opens a certain number of long or short positions, Initial Margin = Position Value / Leverage
Crypto-margined contracts
e.g. If the current BTC price is $10,000, the user wants to buy futures contracts worth 1 BTC with 10x leverage, the Nubmer of Contracts = BTC Quantity*BTC Price / Contract Size = 1*10,000/100 = 100 contracts.
Initial Margin = Contract Size*Number of Contracts / (BTC Price*Leverage) = 100*100 / ($10,000*10) = 0.1 BTC
USDT-margined contracts
e.g. If the current BTC price is $10,000 USDT/BTC, the user wants to buy futures contracts worth 1 BTC with 10x leverage, Nubmer of Contracts = BTC Quantity / Contract Size = 1/0.01 = 10,000 contracts.
Initial Margin = Contract Size*Number of Contracts*BTC Price / Leverage) = 0.01*10,000*10,000 / 10=1,000 USDT
4. Margin rate
Initial Margin: 1/Leverage
Maintenance Margin: The minimum margin rate required for the user to maintain the current position.
Spot and futures cross margin:
Initial Margin = (Currency Balance + Earnings -Trading Volume of Pending Maker Sell Orders in the Selected Currency - Trading Volume of Pending Maker Buy Options Orders in the Selected Currency - Trading Volume of Pending Isolated Margin Positions in the Selected Currency - Trading Fees of All Maker Orders) / (Maintenance Margin + Liquidation Fee).
Multi-currency cross margin:
Initial Margin = Adjusted Equity / (Maintenance Margin + Trading Fee)
Spot and futures, and multi-currency isolated margin / Portfolio margin:
1) Crypto-margined contracts
Initial Margin = (Margin Balance + Earnings) / (Contract Size * |Number of Contracts| / Mark Price*(Maintenance Margin + Trading Fee))
2) USDT-margined contracts
Initial Margin = (Margin Balance + Earnings) / (Contract Size * |Number of Contracts| * Mark Price*(Maintenance Margin + Trading Fee))
5. Margin calls
In Isolated Margin mode, users can increase the margin for a specific position for better risk control.
6. Leverage adjustment
OKX allows users to adjust the leverage for open positions. If the adjusted leverage is less than the maximum leverage of the current position, the user can increase the leverage, while the initial margin will be reduced. Conversely, when the user reduces the leverage, the initial margin will increase if there is available balance in the account.