2024-07-10 15:33:04Maintenance Margin is essential for sustaining a position in trading. This article will delve into the calculation process specifically for USDT Perpetual contracts.
What is the Maintenance Margin?
Maintenance Margin is the minimum amount of margin a trader must maintain in their position or account to continue holding a position. When unrealized losses cause the position margin in a position or account to fall below the required maintenance margin level, liquidation will be triggered.
As traders hold larger contract values (position value + order value), the maintenance margin required will also increase by a fixed percentage as the contract value rises to a specific level. Each trading pair has its maintenance margin base rate, which adjusts according to changes in the risk limit tiers.
For example, when you open a BTCUSDT position with a position value of 2,000,000 USDT or below, the maintenance margin rate (MMR) required for the position is 0.5% of the position value. If the position value increases to 2,600,000 USDT, the MMR required will also increase to 0.56% of the position value.
For more details regarding risk limits, please refer to our guide here.
Calculation of Maintenance Margin Rate (MMR)
The Maintenance Margin Rate (MMR) for each position is determined using a tier-based calculation according to the margin level of the position value. Any excess beyond a particular tier is subject to the calculation based on the MMR of the new tier.
Illustration
The table below shows the margin parameters of XYZUSDT contracts.
|
Tier |
Risk Limit (USDT) |
Maintenance Margin Rate Required |
|
1 |
0 - 1,000 |
2% |
|
2 |
>1,000 - 2,000 |
2.5% |
|
3 |
>2,000 - 3,000 |
3% |
|
4 |
>3,000 - 4,000 |
3.5% |
|
5 |
>4,000 - 5,000 |
4% |
Assuming a trader enters a long position of 100 contracts with 10x leverage at 35 USDT, the contract’s position value would be 3,500 USDT.
Position Value = Contract quantity x Average Entry Price
= 100 x 35 = 3,500 USDT.
Initial Margin = Position Value / Leverage
= 35 x 100 / 10 = 350 USDT
Maintenance Margin = Position Value x MMR
= (1,000 x 2%) + (1,000 x 2.5%) + (1,000 x 3%) + (500 x 3.5%)
= 92.5 USDT
This means that the position can withstand a maximum unrealized loss (calculated using Mark Price) of 257.5 USDT (350 USDT - 92.5 USDT) before liquidation takes place.
Formula
Now that you understand how the maintenance margin is calculated, as seen in the illustration above, the calculation can be quite tedious when dealing with large position values. Therefore, for the sake of simplicity, we can use the following formula to calculate the position maintenance margin.
Position Value = Contract Size x Average Entry Price
Maintenance Margin (MM) = (Position Value x MMR) - Maintenance Margin Deduction
whereas,
MM Deduction on Tier n = Risk Limit on Tier n-1 x (Difference between MMR on Tier n and Tier n-1) + MM Deduction on Tier n-1
The MMR required for each risk limit tier and the Maintenance Margin Deduction amount can be easily found on the Margin Parameters page.
Examples
The table below shows the Margin Parameters for ETHUSDT.
|
Tier |
Risk Limits |
Max. Leverage |
Maintenance Margin Rate |
Maintenance Margin Deduction |
|
1 |
0 - 100,000 |
25 |
2% |
0 |
|
2 |
>100,000 - 200,000 |
20 |
2.5% |
100,000 x (0.5%) + 0 = 500 |
|
3 |
>200,000 - 300,000 |
16.67 |
3% |
200,000 x (0.5%) + 500 = 1,500 |
|
4 |
>300,000 - 400,000 |
14.29 |
3.5% |
300,000 x (0.5%) + 1,500 = 3,000 |
|
5 |
>400,000 - 500,000 |
12.5 |
4% |
400,000 x (0.5%) + 3,000 = 5,000 |
*The above table is merely an illustration and does not represent actual margin parameters. Please always refer to this page for the most updated margin parameters.
Example 1
Trader A uses 10x leverage and opens a long position of 100 ETH at a price of 4,000 USDT.
Position Value = 100 x 4,000 = 400,000 USDT (Tier 4)
Initial Margin = 400,000 / 10 = 40,000 USDT
Maintenance Margin = 400,000 x 3.5% - 3,000 = 11,000 USDT
This means the position can withstand a maximum unrealized loss of 29,000 USDT (40,000 USDT - 11,000 USDT) before liquidation is triggered.
Example 2
Trader B utilizes 10x leverage and opens the ETHUSDT long position of 50 ETH at 4,000 USDT, while simultaneously having a buy limit order for 50 ETH at USDT 3,000.
Position Value = 50 ETH x 4,000 = 200,000 USDT (Tier 2)
Position Maintenance Margin = 200,000 x 2.5% - 500 = 4,500 USDT
Order Maintenance Margin = 50 ETH x 3,000 x 3.5% = 5,250 USDT
Total Maintenance Margin Required = 4,500 + 5,250 = 9,750 USDT.
As a result, we can see that when an order is not filled, the order maintenance margin is calculated based on the corresponding MMR of the tier determined by the (position value + order value) instead of the tiered-based calculation. The MMR required for the tier of 200,000 USDT position value + 150,000 USDT order value is 3.5%.
Assuming the buy order is now filled. The total maintenance margin required has now become:
Average Entry Price = [(50 x 4,000) + (50 x 3,000)] / 100 = 3,500 USDT
Position Value = 100 ETH x 3,500 = 350,000 USDT (Tier 4)
Initial Margin = 350,000 / 10 = 35,000 USDT
Maintenance Margin = 350,000 x 3.5% - 3,000 = 9,250 USDT
After the order is filled, the overall maintenance margin required is reduced to 9,250 USDT. This means the position can withstand a maximum unrealized loss of 25,750 USDT (35,000 USDT - 9,250 USDT) before the liquidation is triggered.
Conclusion
Understanding the calculation process for both position and order maintenance margins is essential for traders to manage their risk effectively on Bybit. By comprehending how these margins are calculated, traders can make informed decisions to reduce liquidation risk and optimize their trading strategies.
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