Cross Margin Liquidation Process 

The key difference between isolated margin and cross margin is that cross margin takes into account available balance when calculating margin coverage and other parameters. Liquidation for cross margin happens when Margin coverage reach 100%.

Margin Coverage = ( Free Balance + P&L) / Margin Maintenance x 100 

Note: Only when P&L is a loss/negative it is added to the margin coverage calculation

Terms and Definition

Initial Required Margin (IRM): The minimum margin required to open a position. This initial required margin is calculated by the following formula: 

Open Price * Position Size * (1 / Leverage)

Example :

A  trader opens an isolated margin position with an order value of 8,000 USD with the position size of 2 BTC. The user selects a leverage level of 4x. In this case, the user will need to post an IRM of 4,000 USD to create the order.

Note : for Infinity, IRM is 1% for the first 50 BTC (100x leverage) and increase in step of 0.5% for every additional 50 BTC added to the combined position. Refer here for more information

Allocated Margin (AM): Margin which has been allocated to the open position. When an isolated position is open, the initial required margin is the allocated margin. Allocated margin value CANNOT be changed as long as the position is open, and its value will always be equal to the Initial Required Margin (AM = IRM)

Margin Maintenance (MM) is the margin required to maintain the position open.

MM = Order Value * p  Where p is the default percentage

Default maintenance margin for Margin trading percentages : p =  2%

Free Balance ( FB ): Free balance is the Initial balance - Allocated Margin

EXAMPLE 1 

Buying 1 BTC at $8000 at 25x leverage rate, borrowing $8000 at daily rate 0.04%, trading fee 0.1%

Let's say that a trader's balance before the trade is $600. To start the trade, the trader must have at least $8000 / 25 = $320 as margin, plus some more to pay the fee (if applicable) and interest.

Trader takes up a loan of $8000 at 0.04% and pays first interest, $3.20

The trader uses this $8000 to buy 1 BTC and pays a trading fee of 0.1% for the buying execution, $8.

Supposing that market bid is now $8100, trader's account details are as follows:

Margin Coverage = ( Free Balance + P&L) / Margin Maintenance x 100
= (268.80 + 0) / 160 x 100 = 168%
  • P&L: $100. Note: Only when P&L is a loss/negative is added to the margin coverage calculation. Hence the value of P&L in the calculation is 0.
  • Initial Balance: $588.80 (Balance before trade, minus interest and trading fee)
  • Allocated Margin: $320
  • Margin Maintenance : $160
  • Free Balance: $268.8 (Initial Balance minus Allocated Margin) 
  • Margin Coverage: 168%

If the trader closes the trade now, they sell the 1 BTC that was bought from the beginning with loan money and pay the trading fee again, now $8.10, for the selling execution. With $8100 made from selling 1 BTC, they pay off the $8000 loan. In total, they pay $3.2 interest and $16.10 trading fee, to have gotten a profit of $100. Their final balance is $680.70

If the trader decides to hold onto the trade to the next day, more interest will be deducted as it is a daily fee.

Supposing that market bid is now $7900, trader's account details are as follows:

Margin Coverage = ( Free Balance + P&L) / Margin Maintenance x 100
= (268.80 + (-100)/ 160 x 100 = 105.5%
  • P&L: -$100 Note: Only when P&L is a loss/negative is added to the margin coverage calculation
  • Initial Balance: $588.80 (balance before trade, minus interest and trading fee)
  • Allocated Margin: $320
  • Margin Maintenance : $160
  • Free Balance: $268.8 ( Initial Balance minus Allocated Margin )
  • Margin Coverage: 105.5%

If the ratio is below 120%, the system will issue a margin call warning email. If the trader closes the trade now, after selling 1 BTC and paying off its trading fee and the loan, the trader will have taken a loss of $100. Their final balance is $480.90

If the trader decides to hold onto the trade to the next day, more interest will be deducted as it is a daily fee.

If due to some reason available margin gets below 100% (market bid getting too low or trader doing some more trades that deplete their balance), forced liquidation will occur.

EXAMPLE 2

Selling 1 BTC at $8000 at 25x leverage rate, borrowing 1 BTC at a daily rate 0.02%, trading fee 0.1%

Short trades are a bit more complicated because the trader has to pay back their loan in base currency, and to do so they have to use quote currency to buy base currency first.

Let's say that the trader's balance before the trade is $600. To start the trade, the trader must have at least $8000 / 25 = $320 as margin, plus some more to pay a fee (if applicable) and interest.

Trader takes up a loan of 1 BTC at 0.02% and pays first interest, 0.0002 BTC. They have to use quote currency (in this case USD) to buy 0.0002 BTC at market ask to pay.

The trader uses this 1 BTC to sell for $8000 and pays a trading fee for the buying execution, $8.00

Supposing that market ask is now $8000, trader needs to spend $8000 * 0.0002 = $1.60 to buy 0.0002 BTC and pay interest. Trader's account details are as follows:

Margin Coverage = ( Free Balance + P&L) / Margin Maintenance x 100
270.40 + 0 / 160 x 100 = 169%
  • P&L: $100 Note: Only when P&L is a loss/negative is added to the margin coverage calculation
  • Initial Balance: $590.40 (balance before trade, minus interest and trading fee)
  • Allocated Margin: $320
  • Margin Maintenance: $160
  • Free Balance: $270.40 (Balance minus Allocated Margin ), 
  • Margin Coverage: 169.0%

If the trader closes the trade now, they buy back 1 BTC with the $8000 from the first selling execution and pay the trading fee again, now $7.90, for the selling execution. Then they can pay off the loan with 1 BTC. In total, they pay $1.60 of interest and $15.90 of trading fee, to have gotten a profit of $100. Their final balance is $682.50. If the trader decides to hold onto the trade to the next day, more interest will be deducted as it is a daily fee. In the case of short trades, interest changes according to market ask.

Supposing that market bid is now $8100, trader's account details are as follows:

Margin Coverage = ( Free Balance + P&L) / Margin Maintenance x 100 
270.40 + (-100) / 160 x 100 = 106.5%
  • P&L: -$100 Note: Only when P&L is a loss/negative is added to the margin coverage calculation
  • Initial Balance: $590.40 (balance before trade, minus interest and trading fee)
  • Allocated Margin: $320
  • Margin Maintenance: $160
  • Free Balance: $270.40 (Balance minus Allocated Margin )
  • Margin Coverage: 106.5%

If the ratio is below 120%, the system will issue a margin call warning email. If the trader closes the trade now, after buying 1 BTC at the market bid and paying off its trading fee ($8.10) and the loan, the trader will have taken a loss of $100. Their final balance is $482.30

If the trader decides to hold onto the trade to the next day, more interest will be deducted as it is a daily fee. In the case of short trades, interest changes according to the market ask.

If due to some reason available margin gets below 100% (market bid getting too low or trader doing some more trades that deplete their balance), forced liquidation will occur.

Did this answer your question?