How much margin is required for AscendEX contracts to avoid liquidation?

Margin trading on AscendEX allows traders to control a larger cryptocurrency position with a smaller initial investment through leverage, but it's crucial to understand the margin requirements to avoid triggering liquidation and losing the initial investment.

Nov 29, 2024 at 03:29 pm

Margin Requirements for AscendEX Contracts: Avoiding Liquidation

Margin trading in the cryptocurrency market enables traders to leverage their positions, potentially multiplying both profits and risks. However, it's crucial to understand the margin requirements of each exchange to avoid liquidation. This article aims to provide a comprehensive guide on the margin requirements for AscendEX contracts and strategies for managing risk.

Step 1: Understanding Leverage and Margin Requirements

Leverage refers to the ratio of borrowed funds to the trader's own capital. Margin trading on AscendEX allows traders to utilize leverage, enabling them to control a larger position with a smaller initial investment. However, leverage magnifies both potential gains and losses.

Margin requirements, expressed as a percentage, represent the minimum amount of capital a trader must maintain in their account to cover potential losses. If the margin level falls below the requirement, the exchange may force liquidation to cover the losses, resulting in the potential loss of the trader's initial investment.

Step 2: Identifying Margin Requirements for AscendEX Contracts

AscendEX categorizes its contracts into three types: Standard, USDT-Margined, and Coin-Margined. Each contract type has its specific margin requirements, varying depending on the underlying asset and market conditions.

• Standard Contracts: These contracts are traded with leverage borrowed in the same underlying cryptocurrency. For example, BTC/USD Standard contracts require a 5% margin.
• USDT-Margined Contracts: These contracts are traded with leverage borrowed in USDT, a stablecoin. USDT-Margined contracts typically have lower margin requirements compared to Standard contracts, offering greater leverage. For instance, BTC/USDT-Margined contracts require a 3% margin.
• Coin-Margined Contracts: These contracts enable traders to collateralize positions with other cryptocurrencies. The margin requirements for Coin-Margined contracts depend on the chosen collateral asset, ranging between 3% and 20%.

Step 3: Calculating Margin Required for Specific Trades

To determine the margin required for a specific trade, traders should consider the contract type, leverage, and position size.

• Formula for Margin Required:

Margin Required = Margin Requirement * Leverage * Position Size

• Example: A trader wants to open a long position of 10 BTC in the BTC/USD Standard contract with 5x leverage.

Margin Required = 0.05 * 5 * 10 = 2.5 BTC

In this scenario, the trader would need to maintain a margin balance of at least 2.5 BTC to avoid liquidation.

Step 4: Strategies for Managing Margin Risk

• Choose Appropriate Leverage: Select a leverage level that aligns with your risk tolerance and trading goals. Higher leverage amplifies both potential profits and risks.
• Maintain Adequate Margin: Ensure your account balance meets or exceeds the margin requirements for your open positions. Close or reduce positions if necessary to maintain a healthy margin level.
• Monitor Market Conditions: Stay informed about market volatility and price movements. Adjust your leverage accordingly to manage risk.
• Use Limit Orders: Use limit orders to set clear entry and exit points for your trades, reducing the likelihood of unexpected liquidations.
• Diversify Positions: Consider spreading your capital across multiple contracts to reduce the impact of adverse price movements on any single position.