How Is the Margin Calculated for a Crypto Futures Position?
Margin is calculated as a percentage of the total notional value of the futures contract. This percentage is determined by the exchange and depends on the asset’s volatility and the leverage used.
For example, a 10% margin on a $10,000 contract means the trader must deposit $1,000. This required deposit is the initial margin, which acts as collateral against potential losses.
Glossar
Collateral
Requirement ⎊ Collateral in derivatives trading represents the assets pledged by a market participant to secure their obligations, mitigating the counterparty risk associated with open positions.
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.
Crypto Futures
Product ⎊ Crypto futures are standardized, exchange-traded contracts obligating the holder to buy or sell a specific quantity of a cryptocurrency at a predetermined price on a specified future date.
Increasing Leverage
Amplification ⎊ The practice of increasing leverage in cryptocurrency, options, or derivatives trading fundamentally involves magnifying potential returns ⎊ and losses ⎊ by controlling a larger notional value with a smaller amount of capital.
Margin Balance
Balance ⎊ The margin balance represents the net value of a trading account, reflecting the difference between the total collateral posted and the current realized and unrealized profit or loss on open positions.
Full Cost
Valuation ⎊ Full cost, within cryptocurrency, options, and derivatives, extends beyond nominal price to encompass all associated expenses impacting net profitability, including transaction fees, slippage, and opportunity costs.