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Risk Limit
The concept of dynamic leverage is used for MUFEX's Risk Limit. This means the larger the contract value traders hold, the lower the maximum leverage allowed. In other words, the initial margin requirement incrementally goes up by a fixed percentage at every specific increase in contract value level. Each trading pairs have its specific maintenance margin base rate and the margin requirements will increase or decrease accordingly as risk limit changes.
Risk limit is a risk management measure to limit the risk exposure of traders. A large position with high leverage may cause huge contract losses when liquidated in a highly volatile market. Contract losses are created when the position is liquidated beneath the bankruptcy price and coupled with a depleted insurance fund that is insufficient to fully absorb the losses, Auto deleveraging (ADL) system will be triggered. Traders with a large position pose an increased risk of ADL to other traders on the exchange. To minimize the possibility of ADL occurring, MUFEX imposes a risk limit on all trading accounts according to their positional contract value held.
As the position contract value increases, the maintenance margin and initial margin requirements will also increase. Users can choose to increase or decrease the risk limit inside their Preferences. The default risk limit level on MUFEX will always start from the lowest risk limit level.
MUFEX will perform a laddered liquidation process for traders using higher risk limits, and will automatically reduce the level of maintenance margin by attempting to reduce the risk limit levels to the lowest possible level to avoid an immediate full liquidation of the trader’s position. For more details on the Liquidation process, please click here.
Formula：
Term | Formula |
|---|---|
New Risk Limit（RL） | RL Base Value +（Number of incremental * RL incremental value） |
New Maintenance Margin（MM）% | MM Base Rate +（Number of incremental * MM incremental rate） |
New Initial Margin（IM）% | IM Base Rate +（Number of incremental * IM incremental rate） |
New Maintenance Margin Amount | New MM% * Total Position Value |
The following charts represent the risk limits for different trading pairs:
Symbol | Risk Limit Tier | Position Value Tier 1(USDT) | Maintenance Margin Rate Tier 1(%) | Initial Margin Rate Tier 1(%) |
BTCUSDT | 1 | 100,000 | 0.40% | 0.67% |
ETHUSDT | 1 | 100,000 | 0.40% | 0.67% |
*Special Note: The risk limit calculation formula does not apply to the first tier of risk limits, therefore the second tier becomes the base risk limit tier.
Last modified 5mo ago