How Is the Margin Requirement Calculated for a Perpetual Swap Contract?
Margin for perpetual swaps is calculated based on the notional value of the position and the required initial margin rate set by the exchange. The rate is often tiered, meaning larger positions require a higher percentage of margin.
The calculation is typically: Notional Value x Initial Margin Rate. Volatility can cause the exchange to dynamically adjust this rate.
Glossar
Perpetual Swaps
Definition ⎊ Perpetual swaps are a type of derivative contract, highly popular in cryptocurrency markets, that allows traders to speculate on the future price of an asset without an expiration date.
Initial Margin Rate
Collateral ⎊ Initial margin represents the equity a trader must deposit with a broker or exchange to open and maintain a leveraged position in cryptocurrency derivatives or options contracts, functioning as a performance bond.
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.
Perpetual Swap
Mechanism ⎊ Perpetual swaps, within cryptocurrency markets, represent agreements to exchange cash flows based on the difference between a cryptocurrency’s current price and a user-defined price, perpetually, without an expiration date.