At Astral, Margin (also known as initial margin) refers to the amount of collateral that a trader needs to deposit when opening a position. Margin is utilized to support the trader's leveraged trading activities and determines the position size the trader can take. The general formula for calculating margin is as follows:
Margin = Trading lots * Contract size * Convert rate * Percent / Leverage
Where:
-
Trade lots: The specific quantity of digital assets bought or sold by the trader in a particular transaction.
-
Contract size: Contract size represents the quantity of contracts bought or sold by the trader in the trade.
-
Convert rate: The exchange rate is used to convert the trading asset from one currency unit to another. As digital asset trading may involve currency conversions, this rate is used in calculation.
-
Percent: A parameter used for adjusting the margin based on the exchange's or platform's rules. This factor can influence the trader's leverage and trading scale.
-
Leverage: Leverage refers to the ability of the trader to increase their trading position by borrowing additional funds. Leverage allows traders to participate in larger trades with a smaller amount of capital, but it also increases risk.
The above formula calculates the margin for a single position, and it should be noted that open orders do not occupy margin. If a trader holds both long and short positions for the same product, the total margin required is based on the position with the larger quantity.
The margin for the entire account is the sum of the margin for all products traded. When there are no open positions, the account's margin is zero.
By calculating the margin, traders can understand the amount of collateral being utilized for their current position size. This helps traders evaluate risk and control the leverage used in their leveraged trading activities, ensuring they do not exceed their risk tolerance.
It is essential to consider multiple factors when making investment decisions, and seeking professional financial and investment advice is recommended before engaging in trading or investment activities in the cryptocurrency market.