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Isolated Margin vs Cross Margin

5 months ago

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Traders who do perpetual trading use different trading strategies. MCS supports two types of orders: isolation margin and cross margin. These two types of orders differ from the concept to the formula for liquidation and position margin. In this article, we would like to compare these order types.

   


Isolated Margin

Traders will allocate their margin on an order-by-order basis. If a trader is liquidated, only the margin allocated will be affected and the remaining wallet balance rests unaffected.

       


                               

Cross Margin

Cross margin is a way of trading with the entire available Wallet Balance. The maximum contract size of the cross margin is determined by the maximum leverage allowed for a trading pair. Leverage depends on the initial margin of the position. In other words, the larger the initial margin, the lower the leverage used by the traders. In addition, the position is closed when the position margin reaches the maintenance margin level. In cross margin, the system automatically determines the trader's leverage according to the amount of contracts submitted.

Did you notice the difference between Isolated Margin and Cross Margin? Isolated Margin can prevent rapid balance loss, while Cross Margin is less limited in terms of asset management since it uses up the whole wallet balance.

Since Position Margin is an essential asset in order to open positions, a trader who buys Isolated or Cross Margin should check the amount of assets he or she must have and start trading. So let's look at how assets are calculated for each transaction.

   


<Position Margin Formula>

Isolated Margin

$$ \small\textsf{Position Margin (Isolated)} = \textsf{Initial Margin} + \textsf{Taker Fee to Close} + \textsf{UPNL} $$

       

Cross Margin

$$ \small\textsf{Position Margin (Cross)} = \textsf{Initial Margin} + \textsf{Fee to Close} + \textsf{Unrealized Profit} $$

$$ \text{Position Margin (Cross)} = \text{Initial Margin} + \text{Fee to Close} + \text{Unrealized Profit} $$

$$ {\small \text{Initial Margin} = {{\text{Quantity} \times \text{Multiplier}} \over {\text{Avg. Entry Price} \times \text{Leverage}}}} $$

$$ {\small \text{Taker fee to close} = {{\text{Quantity} \times \text{Multiplier}} \over \text{Bankruptcy Price calculated with Order Price}} \times \text{Taker Fee Rate}} $$


As we mentioned in the last article, one of the things that the traders should keep in mind is liquidation. Let's take a look at the liquidation process and formula for each order type. In this article, we will only cover the long position, but if you would like to learn more about the short position's, please refer to the MCS Zendesk.

   

<Isolated Margin Liquidation Process>
  1. When the Mark Price reaches the liquidation price, the position is taken over by the liquidation engine.
  2. The liquidation engine takes the position and liquidates the position to the bankruptcy price.
  3. Reduce risk limit and carry out liquidation process step by step.

Note) The liquidation engine tries to prevent contract losses by closing the position at the bankruptcy price. However, in volatile or non-liquid markets, the position may be closed at a price worse than the bankruptcy price. In the event of such contract loss, the insurance fund will primarily act to prevent the loss, and if the insurance fund has insufficient funds, the position will be handled through auto deleveraging.

   

<Cross Margin Liquidation Process>

Cross margin secures margin to delay liquidation in the following ranks. The position is liquidated when all four ranks are progressed.

#1 Available Balance

#2 Reduce Risk Limit Level

#3 Cancel all Active Orders in the same direction

#4 Cancel all Active Orders in other directions

         


<Liquidation Formula>

Isolated Margin Liquidation Price Formula - Long Position

$$ \textsf{Isolated Margin Liquidation Price (Long)} ={{\textsf{Avg. Entry Price} \times \textsf{Leverage}} \over \textsf{Leverage(1 - Maintenance Margin Rate) + 1}} $$

$$ \text{Liquidation Price (Isolated)} ={{\text{Avg. Entry Price} \times \text{Leverage}} \over \text{Leverage(1 - Maintenance Margin Rate) + 1}} $$

       

Cross Margin Liquidation Price Formula - Long Position

$$ \small\textsf{Cross Margin Liquidation Price (Long)}$$

$$ \small = {{\textsf{Avg. Entry Price} \times \textsf{Quantity}} \over {\textsf{Quantity(1 - Maintenance Margin Rate} - {\textsf{Avg. Entry Price} \times \textsf{Taker Fee Rate} \over \textsf{*Bankruptcy Price}}) + {\textsf{Available Balance}\times\textsf{Avg. Entry Price}}}} $$

                 

We hope you a successful trade by referring to this article.

MCS will consider traders at the first.

Thank you.

   

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Published 5 months ago