Isolated margin is one of the two most popular margining systems, the other being cross margin. In isolated margining, the margin (collateral) in a position represents the maximal possible loss. The capital management happens via the Margin Ratio (
MR) formalism described below.
Initial Margin Ratio (IMR) defines the maximum leverage at position open
For example, IMR of 5% yields 20x maximum initial leverage. If position's
MR < IMR, orders that further decrease the
Maintenance Margin Ratio (MMR) determines the leverage at liquidation and thus the liquidation price. If a position's
MR < MMR, the position is undercollateralized and can be liquidated. The
MMRwill always be set to a lower value than the
IMR. If a position's is
MMR < MR < IMR, only actions that improve the
Liquidation. When trading with leverage, traders must be aware of the
MMR, which defines the liquidation price. A position will be liquidated if the
MRfalls below the
MMRin the respective market. To avoid liquidation, a trader should either add margin to the position or close out the position before its Margin Ratio reaches
MMR. In a liquidation, the position is closed, and the trader loses all margin assigned to it.
Perpetual contracts allow traders the option to open positions with leverage. The initial deposit, called collateral or initial margin, is used to open a more sizable trade.
Margin Token: USDC.e (bridged USDC) token that will be used for deposits and as margin to open positions.
Size: number of perpetual contracts in a position.
Leverage: the ratio of the notional value to the margin.
Position Balance: the notional value of current position denominated in USDC.
Margin: the margin assigned to a position. The margin amount is transferred from the
MarginBankcontract (total deposited funds) into the position and is the maximum loss the trader can suffer on any position. At position entry, margin depends on the leverage chosen by the trader.
Position Debt: the amount that the trader owes to the position and, fixed at the time the position is opened:
Margin Ratio: Determines a position's collateralization using Position Debt and Position Balance.