How Is the Maintenance Margin Typically Calculated for a Futures Contract?
The maintenance margin is usually calculated as a percentage of the notional value of the position, or as a percentage of the initial margin, and often increases as the position size grows (tiered margin system). For example, it might be 0.5% of the notional value.
This percentage is set by the exchange and is crucial for determining the liquidation price. It ensures a small buffer remains after liquidation to cover fees and potential market slippage.
Glossar
Initial Margin
Collateral ⎊ Initial margin represents the equity a trader must deposit with a broker or exchange as a good faith commitment to cover potential losses arising from derivative positions, notably within cryptocurrency markets.
Position Size
Allocation ⎊ Position size, within cryptocurrency and derivatives markets, represents the proportional capital commitment to a specific trade or investment relative to total available trading capital; it’s a fundamental risk management parameter directly influencing portfolio volatility and potential drawdown.
Volatility
Measurement ⎊ Volatility, in quantitative finance, is the statistical measurement of the dispersion of returns for a given financial asset, typically quantified by the annualized standard deviation of its price movements.
Maintenance Margin
Collateral ⎊ Within cryptocurrency derivatives and options trading, the maintenance margin represents the minimum equity a trader must maintain in their account to cover potential losses.
Fees
Definition ⎊ Fees represent the charges levied by exchanges or protocols for executing transactions and providing services within cryptocurrency and derivatives markets.
Notional Value
Scale ⎊ Notional Value refers to the total market value of the underlying asset controlled by a derivatives position, calculated by multiplying the contract size by the current market price, irrespective of the actual margin capital posted.