🏝️Isolated Margin/ Cross Margin
Last updated
Last updated
There are two margin modes on MUFEX: Isolated margin mode and Cross margin mode.
The isolated margin mode depicts the margin placed into a position is isolated from the trader's account balance. This mode allows traders to manage their risks accordingly as the maximum amount a trader would lose from liquidation is limited to the position margin placed for that open position.
It is default margin mode on MUFEX. The cross margin mode uses all of a trader’s available balance within the corresponding trading pair coin type to prevent liquidation. When the trading pair's equity is lower than the maintenance margin, the position will be liquidated. In the event of liquidation, the trader will lose all his/her equity for that particular trading pair.
Traders can always change the margin mode from the order zone. When a margin mode is changed, it will be applied to the opened position and any active & conditional order. Any margin changes made will affect the liquidation price of the position. Hence, cross margin and isolated margin are interchangeable anytime whenever the account has a sufficient margin and the change itself doesn't trigger immediate liquidation.
Under cross margin mode, traders can set their own leverage.
MUFEX will default to using 10x leverage to calculate the initial margin. Take the BTCUSDT perpetual contract as an example, the initial margin used to trade this contract is its contract value/10, that is, the maximum number of contracts that can be opened in your account will be calculated by default using 10x leverage.
If a trader wish use other leverage multiples, traders can click "cross margin" in the order zone and adjust the leverage by sliding the leverage indicator bar or manually entering the leverage multiple.
Under cross margin mode, the liquidation price of the position will only change when the available balance of the account, the position size, the entry price of the position or the risk limit of the account are changed. Otherwise, the liquidation price will remain unchanged.
The liquidation price changes under the cross margin mode are mainly divided into the following three situations:
The trader only holds a single position and does not hold any active orders.
In this case, the liquidation price will not be affected. Because under cross margin mode, when the trader modifies the leverage, the number of positions, the entry price and the total amount of assets used to support the position remain unchanged.
The user only holds a single position and holds active orders at the same time.
In this case, the liquidation price of the position will be affected. When the leverage is increased, the initial margin occupied by the activity order will be reduced, so more margin can be released, and the increased available balance can be used to support the position. If the leverage is reduced, the opposite will occur, because more initial margin is required for active orders.
The user holds multiple positions that share the same assets, such as USDT trading pairs that use USDT as margin.
In this case, modifying the leverage will affect the liquidation price. Because the initial margin required for the positions will increase or decrease with the adjustment of leverage. When the leverage of one of the positions is increased, the margin required for that position is reduced, and this part of the margin will be released to support other positions; and when the leverage of one of the positions is decreased, the position requires more initial margin. Thereby reducing the available balance of the account, which will move the liquidation price of other positions closer to the mark price, thereby increasing the risk of liquidation of the position.
In fact, the leverage will not affect the unrealized P&L. When leverage is adjusted for a position, the initial margin requirements will change while the position size (QTY) remains unchanged. The main function of applying leverage is to determine the initial margin rate required to open your position. The unrealized p&L will not be amplified when traders change the leverage.
However, as mentioned above, how traders can benefit from using higher leverage is that they are able to open a larger position size under the same amount of margin. Hence, The unreal P&L will be amplified from the increased Position Size but NOT from the increased leverage.
Despite the unrealized P&L is unaffected after the leverage changed, traders will observe changes on the unrealized P&L% (ROI%).
Under Isolated mode:
Unrealized P&L% = Unrealized P&L /(initial margin + fee to close + additional margin added to position) x 100%
Under Cross margin mode:
Unrealized P&L% = Unrealized P&L /(initial margin + fee to close) X 100%
An increase in leverage will reduce the initial margin required or vice versa. Thus with the same unrealized P&L, traders will see an increase in unrealized P&L% due to a reduction in the position margin and not because of an increase in actual profits.
