Coin-margined Ladder Maintenance Margin Rate

The ladder maintenance margin rate system for coin-margined perpetual contracts is a risk management mechanism that applies different maintenance margin requirements based on position size. This tiered approach ensures that larger positions, which pose greater systemic risk, maintain higher margin ratios.

Understanding Maintenance Margin in Coin-margined Contracts

The maintenance margin is the minimum amount of collateral required to keep a position open. In coin-margined contracts, both the collateral and the maintenance margin are denominated in the underlying cryptocurrency (e.g., BTC for BTC/USD contracts).

The margin ratio for coin-margined contracts is calculated as:

Margin Ratio = (Position Margin + Unrealized PnL) / Position Value × 100%

When a user's margin ratio falls below the maintenance margin rate plus the closing fee rate, the position is at risk of liquidation.

Ladder Maintenance Margin Rate Structure

For coin-margined perpetual contracts, the maintenance margin rate increases as the position size grows. Below is the ladder maintenance margin rate structure for BTC/USD coin-margined contracts:

Position Tier (Notional Value)	Maintenance Margin Rate
Tier 1: < 50 BTC	0.5%
Tier 2: 50 - 100 BTC	0.75%
Tier 3: 100 - 200 BTC	1.0%
Tier 4: 200 - 300 BTC	1.25%
Tier 5: > 300 BTC	1.5%

Note: The specific tier thresholds and maintenance margin rates vary by contract and may be adjusted based on market conditions.

Unique Aspects of Coin-margined Maintenance Margin

Coin-margined contracts have unique characteristics that affect how the maintenance margin functions:

1. Inverse Relationship with Price: As the price of the underlying asset changes, the required margin (in crypto terms) also changes:

   • When prices rise, the required margin for long positions decreases
   • When prices fall, the required margin for short positions increases

2. Dynamic Risk Profile: The risk profile of positions changes with price movements, which affects the maintenance margin calculation:

   • In bullish markets, maintaining long positions becomes easier
   • In bearish markets, maintaining short positions becomes more challenging

Partial Liquidation Mechanism

For positions in Tier 2 and above, a partial liquidation mechanism is implemented:

1. When the margin ratio falls below the current tier's maintenance margin rate but remains above the Tier 1 maintenance margin rate, the system will perform a partial liquidation rather than liquidating the entire position.

2. The system calculates how many contracts need to be reduced to bring the position down by two tiers.

3. After the partial reduction, if the margin ratio meets the new tier's requirements, the partial reduction stops; otherwise, the process continues until the position reaches an acceptable margin ratio or is completely liquidated.

During partial liquidation, the position is frozen, and no operations can be performed until the process completes.

Calculation Example

Let's illustrate with an example for a BTC/USD contract:

1. A trader has a long position of 150 BTC (notional value) in a BTC/USD contract when BTC is priced at $50,000
2. This position falls into Tier 3, requiring a 1.0% maintenance margin
3. If the price drops to $45,000, the margin ratio might fall below 1.0%
4. Instead of liquidating the entire position, the system calculates how to reduce the position to Tier 1 (below 50 BTC)
5. The system automatically reduces approximately 100 BTC worth of the position
6. If the remaining position's margin ratio now meets the Tier 1 requirement of 0.5%, the partial liquidation stops

Risk Management Recommendations

For traders using coin-margined contracts with the ladder maintenance margin system:

1. Monitor Position Tier: Be aware of which tier your position falls into and the corresponding maintenance margin requirements.

2. Consider Price Impact: Remember that as prices change, the margin requirements for your position (in cryptocurrency terms) also change.

3. Maintain Buffer Margin: Keep additional margin beyond the minimum requirements to account for market volatility.

4. Be Cautious with Large Positions: Larger positions have higher maintenance margin requirements and are subject to the partial liquidation mechanism.

5. Understand Market Direction Impact: In declining markets, the margin requirements for short positions increase in terms of the underlying cryptocurrency, potentially increasing liquidation risk.