Assuming that a trader purchases a 0.1 BTCUSDT perpetual swap contract at the market price of 30,000 USDT. If the trader selects 10x leverage in a long position, the initial margin is set to 10% of the notional value and maintenance margin is set to 1% of the notional value.
- The notional value of this position is 30,000 USDT * 0.1 = 3,000 USDT
- The initial margin is 30,000 USDT * 0.1 * 10% = 300 USDT
The trader will thus put up 300 USDT as collateral to hold a long position on BTCUSDT perpetual swap which is valued at 3,000 USDT.
If BTCUSDT perpetual swap moves from 30,000 USDT to 36,000 USDT
- Initial Margin = 30,000 USDT * 0.1 * 10% = 300 USDT
- Unrealized P&L = 0.1 * (36,000 - 30,000) USDT = 600 USDT
- Remaining margin = Initial Margin + Unrealized P&L = 900 USDT
Although the (mark) price of perpetual swap grows by 20% the margin grows by 200%.
Note: Market price of a perpetual swap will be used to calculate realized P&L, while Unrealized P&L is calculated using Mark Price.
If BTCUSDT perpetual swap moves from 30,000 USDT to 28,000 USDT
- Initial Margin = 30,000 USDT * 0.1 * 10% = 300 USDT
- Maintenance Margin = 30,000 USDT * 0.1 * 1% = 30 USDT
- Unrealized P&L = 0.1 * (28,000 - 30,000) USDT = -200 USDT
- Remaining margin = Initial Margin + Unrealized P&L = 100 USDT
As your remaining margin of 100 USDT ≥ Maintenance margin is 30 USDT the position is not liquidated.
If BTCUSDT perpetual swap moves from 30,000 USDT to 26,000 USDT
- Initial Margin = 30,000 USDT * 0.1 * 10% = 300 USDT
- Maintenance Margin = 30,000 USDT * 0.1 * 1% = 30 USDT
- Unrealized P&L = 0.1 * (26,000 - 30,000) USDT = -400 USDT
- Remaining margin = Initial Margin + Unrealized P&L = -100 USDT
As the remaining margin is below the maintenance margin, the position is immediately liquidated. In this case, the user will lose the entire position and remaining margin.
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