Understanding Leverage Account Margin
Leverage trading allows traders to amplify their potential gains (and losses) by borrowing funds. Margin is the collateral required to open and maintain a leveraged position.
Margin Value Explained
During liquidation events when a trader's assets are sold to cover losses, price slippage may occur. This means the actual execution price might differ from the current market price due to:
- Varying liquidity across different cryptocurrencies
- Order size impacting market movement
Exchanges typically implement tiered margin discount rates to mitigate potential slippage losses during forced liquidations.
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Key Differences Between Margin and Net Assets
While often used interchangeably, margin and net assets have important distinctions:
Not all assets qualify as margin: Only assets listed as eligible collateral contribute to margin value calculations.
Example: If a user holds:
- 1 BTC (worth 10,000 USDT - eligible collateral)
- 1,000 XYZ tokens (worth 1,000 USDT - ineligible)
The margin value would only include BTC's 10,000 USDT value.
Margin assets have limits: Excessive holdings of a margin asset beyond certain thresholds may not count toward margin value.
Example: Holding 10,000 ETH (each worth 10 USDT) with these discount rates:
Dollar Value Range Discount Rate 0 - 10,000 1 > 10,000 0 Only the first 1,000 ETH would count (1,000 × 10 × 1), giving 10,000 USDT margin value instead of the nominal 100,000 USDT.
Margin value ≠ nominal value: Account balances receive adjustments based on tiered discount rates to account for potential liquidation slippage.
Example: With 10,000 ETH (10 USDT each) and these rates:
Dollar Value Range Discount Rate 0 - 50,000 1 50,000 - 80,000 0.8 > 80,000 0 Margin value calculation:
- First 5,000 ETH: 5,000 × 10 × 1 = 50,000
- Next 3,000 ETH: 3,000 × 10 × 0.8 = 24,000
- Remaining 2,000 ETH: 0
Total margin value = 74,000 USDT
Not all assets get liquidated: Only assets contributing to margin value may be sold during liquidation.
Example: Adding 10 ABC tokens (ineligible collateral) to the previous ETH position would mean:
- 8,000 ETH sold during liquidation
- Remaining: 2,000 ETH + 10 ABC (both excluded from margin)
Frequently Asked Questions
What happens if my margin value drops below requirements?
You'll receive a margin call and must either deposit more collateral or reduce your position size to meet maintenance requirements.
How are margin requirements calculated?
Requirements vary by exchange and asset, typically ranging from 2% to 50% of position value, with more volatile assets requiring higher margins.
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Can I use multiple assets as margin?
Yes, most exchanges allow using various cryptocurrencies as collateral, with each having its own discount rate based on liquidity and volatility.