Perpetual futures | Initial margin calculation

1. Margin and initial margin

Margin is the collateral required to support a position. By using margin, traders can gain exposure to a larger position size without paying the full notional value upfront, improving capital efficiency. Initial margin is the minimum amount required to open a position. It is determined by the selected leverage—for the same position size, a higher leverage results in a lower initial margin requirement.

• Isolated margin mode: Margin is allocated per position and managed independently.

• Cross margin mode: All available funds in the derivatives account are shared across positions as margin.

Users can manually add or remove margins for individual positions or for the entire account, but the margin must not fall below the required initial margin.

 

2. Initial margin calculation

Cross margin mode

In cross margin mode, the required initial margin fluctuates with market price movements.

For USDT-M contracts: Initial Margin = Entry Price × Contract Quantity / Leverage

Position Value = Contract Amount × Mark Price

Isolated margin mode

In isolated margin mode, the initial margin is fixed when the position is opened.

For USDT-M contracts: Initial Margin = Entry Position Value / Leverage

Entry Position Value = Contract Amount × Average Entry Price

 

3. Understanding margin and leverage

Leverage allows traders to open larger positions with a smaller amount of capital. While it can amplify returns, it also increases potential losses.

In cross margin mode: Initial Margin = Position Value / Leverage

 

Example:

Assume BTC is priced at 10,000 USDT. A trader opens a long position equivalent to 1 BTC using 20× leverage.

• Contract Size = 0.0001 BTC

• Number of Contracts = 1 ÷ 0.0001 = 10,000

• Initial Margin = 0.0001 × 10,000 × 10,000 ÷ 20 = 500 USDT

 

4. Futures order profit:

When placing an open order, if the order price deviates from the mark price, the system will calculate the order profit upon execution. To enhance risk management, this potential profit will be included in the required margin for opening a position, and therefore cannot be used as available margin.

Buy order profit: Order quantity × (Mark price – Order price)

Sell order profit: Order quantity × (Order price – Mark price)

 

5. FAQs

5.1 How can I check the required initial margin?

The system will automatically calculate and display the required initial margin when you place an order. You can also estimate it using the contract calculator.

5.2 What is the difference between initial margin and position margin?

Initial margin: The minimum margin required to open a position.

Position margin: The actual margin allocated to a position, which fluctuates with market conditions.

5.3 What happens if my margin is insufficient?

If your margin falls below the required level, the system may trigger liquidation to manage risk. Please monitor your margin ratio closely.

5.4 Can I add margin after opening a position?

Yes. You can add margins to reduce liquidation risk and better manage your position.

5.5 How does leverage affect margin?

Higher leverage reduces the required initial margin but increases overall risk. Please choose your leverage level carefully.

 

Disclaimer

This article is for reference only. Digital asset prices are volatile. Toobit does not provide investment advice. You are solely responsible for assessing whether trading or holding digital assets is appropriate for you in light of your financial situation. For professional advice, please consult your legal, tax, or financial advisor and ensure compliance with local laws.