How to calculate Margin requirements, Margin Call and Liquidation
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Leverage reflects the amount of a traders own funds (margin) required, in comparison to the size of the position they wish to open (1:1000, 1:500, 1:100, 1:50, 1:20, 1:10, 1:2, etc.) Margin is the amount of a trader’s own funds that is required to open a position. Required Margin to open a position = Value of the trade / Leverage Lets take a look at an example of a leveraged trade:
Assume that 1 BTC = $9,000. A trader wants to buy a position of 1 BTC worth $9,000, with x200 leverage (i.e. 1:200 leverage) To open this position, the Required margin = $9,000/200 = $45 (0.005 BTC) As seen from this example, to open a position of 1 BTC/USD at the price of $9,000 at x200 leverage, a trader would need to have at least $45 (=0.005 BTC) worth of funds in their account. To simplify this process, a 'Margin Impact' indicator is available in the 'New Order' form, as shown in the screenshot below:
When trading with Margin, it is crucial to maintain sufficient Available Margin levels. Always make sure that Available Margin in your trading account does not drop to 0%. If Available margin drops below a certain point, you may receive a Margin Call. Should available margin drop to 0%, automatic Liquidation may occur.
Traders are advised to maintain a sufficient margin buffer and NEVER utilize 100% of Available Margin. Utilizing all of your Available Margin can lead to sudden liquidation should there be the slightest market movement against your trade.
MARGIN CALL is an intra-platform and email notification which warns that Available Margin in your Trading account is low and that Liquidation may occur should your positions continue to incur further losses. If you are convinced the market will turn around and the trade will end up profitable, additional funds can be added to your trading account. Note, that it is highly recommended to do this BEFORE reaching Margin Call level.
PrimeXBT does not guarantee that a Margin Call will be issued or delivered before liquidating positions. Liquidation may commence without prior Margin Call or shortly after it should minimum margin requirements not be met.
LIQUIDATION can occur if Available margin in your Trading account drops to 0%. In this case all of your open positions will be closed at market price locking in the P/L from all open positions. The initial Margin, which was used to leverage these trades will be “unlocked” and available for further use or withdrawal.
As a reputable platform PrimeXBT always aims to provide the best possible conditions for our clients. As a precautionary measure to ensure maximum reliability and safeguard our clients from various unpredictable market factors, we offer Negative Balance Protection via our insurance fund. Negative Balance Protection insures that, should trading account balance become negative, it will be restored to 0.
Negative balance protection is applied at regular intervals and is used exclusively to cover an existing negative balance. Should a client decide to transfer funds from Wallet to Trading account to cover an existing negative balance, negative balance protection will NOT be applied to reimburse transferred funds.
Any active Reward bonuses will prevent negative balance protection from being applied. Cancelling an active Reward bonus will allow negative balance protection to be applied to an account.
To minimize risks of liquidation, it is highly recommended to use
