An Introduction to Maintenance Margin

Maintenance Margin

Source

Maintenance margin is a popular phrase in the stock market that reminds investors, and traders about having some amount available in their trading account to keep margin trade open and running. This implies that, when trading there should be a minimum amount of equity that must be used to maintain your margin account after you have made the purchase.

The crypto market works similarly to the traditional markets which in the crypto market when explaining maintenance margin is the minimum amount of collateral that a trader must maintain in his or her trading account to keep his or her leverage position open.

What we are trying to explain here about maintenance margin is that when your account equity i.e. your initial deposit minute your unrealized losses fall below this level due to sharp price movements of the asset, your position that you open may get liquidited to prevent your account from having further losses.

Maintenance Margin in Crypto Trading

Based on what we have learned so far, we can say that maintenance margin is the minimum collateral that a trader needs to keep his or her leveraged position open.

To this, if your equity that is your account balance after unrealized losses drops below the margin level, you will be issued a margin call by the exchange you are trading with, or automatically your position will be liquidated. Crypto exchanges like; Mexc, Binance, and many others usually use 0.5 to 2% to define maintenance margin size.

---

Example 1: STEEM Long Position

|

Source

Let's consider using this scenario as an example.
Let's assume you open a 10x leveraged long position on STEEM worth $1,000 automatically you have to contribute $100; the exchange loans $900. The maintenance margin that is required is 2%.

Calculation:

• The maintenance margin for the position size is 2%. (2% of $1,000) = $20.

• Now in a situation where your account equity drops below $20 due to a decline in STEEM price, at the time your trade is open, it means your position is at risk of liquidation.

Liquidation Price:
Now if the price of STEEM drops enough to reduce your equity (initial margin minus unrealized losses to $20, your position will be liquidated by the exchange.

---

Example 2: STEEM Short Position

Let's assume you short $2,000 worth of STEEM on a 5x leverage automatically you have to contribute $100, and the exchange loan is 1,900. The maintenance margin is 1%.

Calculation:

• Maintenance Margin = 1% of $2,000 = $20.
• If STEEM price rises making your equity fall below $20, your short position will be liquidated by the exchange.

There are things you can do to manage maintenance margin in the crypto market some of these things are;

• Monitoring your equity closely since the market is very volatile.

• When trading you meet to set a stop loss order to prevent your account from liquidation.

• You will have to adjust your leverage to reduce your risk of liquidation.

• Finally you have to deposit extra collateral to prevent your account from liquidation so your account can be above margin value.

Reference