Maintenance Margin is essential for sustaining a position in trading. This article will delve into the calculation process specifically for Inverse Contracts. 

What is the Maintenance Margin?

Maintenance Margin is the minimum amount of margin a trader must maintain in their position or account to continue holding a position. When unrealized losses cause the position margin in a position or account to fall below the required maintenance margin level, liquidation will be triggered.

 

As traders hold larger contract values (position value + order value), the maintenance margin required will also increase by a fixed percentage as the contract value rises to a specific level.  Each trading pair has its maintenance margin base rate, which adjusts according to changes in the risk limit tiers. 

 

For example, when you open a BTCUSD position with a position value of 150 BTC or below, the maintenance margin rate (MMR) required for the position is 0.5% of the position value. If the position value increases to 300 BTC, the MMR required will also increase to 1% of the position value.

 

 

For more details regarding risk limits, please refer to our guide here. 

Calculation of Maintenance Margin Rate (MMR)

The Maintenance Margin Rate (MMR) for each position is determined using a tier-based calculation according to the margin level of the position value. Any excess beyond a particular tier is subject to the calculation based on the MMR of the new tier.

 

Illustration

The table below shows the margin parameters of XYZUSD contracts. 

 

 

Assuming a trader enters a long position of 10,000 contracts with 10x leverage at 400 USD, the contract’s position value would be 25 XYZ.

 

Position Value = Contract quantity / Average Entry Price

  = 10,000 / 400 = 25 XYZ

 

Initial Margin = Position Value / Leverage

 = 25 / 10 = 2.5 XYZ

 

Maintenance Margin = Position Value x MMR

 = (10 x 1%) + (10 x 2%) + (5 x 3%) 

 = 0.45 XYZ

 

This means that the position can withstand a maximum unrealized loss (calculated using Mark Price) of 1.95 XYZ (2.5 XYZ - 0.45 XYZ) before liquidation takes place.

Formula 

Now that you understand how the maintenance margin is calculated, as seen in the illustration above, the calculation can be quite tedious when dealing with large position values. Therefore, for the sake of simplicity, we can use the following formula to calculate the position maintenance margin.

Position Value = Contract quantity / Average Entry Price

Maintenance Margin (MM) = (Position Value x MMR) - Maintenance Margin Deduction

 

whereas,

MM Deduction on Tier n = Risk Limit on Tier n-1 x (Difference between MMR on Tier n and Tier n-1) + MM Deduction on Tier n-1

 

The MMR required for each risk limit tier and the Maintenance Margin Deduction amount can be easily found on the Margin Parameters page.

Examples

The table below shows the Margin Parameters for ETHUSD. 

 

 

*The above table is merely an illustration and does not represent actual margin parameters. Please always refer to this page for the most updated margin parameters.

 

Example 1 

Trader A uses 10x leverage and opens a long position of 8,000,000 USD at a price of 2,000 USD.

 

Position Value = 8,000,000 / 2,000 = 4,000 ETH (Tier 3)

Initial Margin = 4,000 / 10 = 400 ETH 

Maintenance Margin = 4,000 x 2.5% - 17.5 = 82.5 ETH

 

This means the position can withstand a maximum unrealized loss of 317.5 ETH (400 ETH - 82.5 ETH) before liquidation is triggered.

Example 2

Trader B utilizes 10x leverage and opens the ETHUSD long position of 8,000,000 USD at 4,000 USD, while simultaneously having a buy limit order for 8,000,000 USD at 2,000 USD.

 

Position Value = 8,000,000 / 4,000 = 2,000 ETH (Tier 2)

Position Maintenance Margin = 2,000 x 1% - 2.5 = 17.5 ETH

Order Maintenance Margin = 8,000,000 / 2,000 x 1.5% = 60 ETH

Total Maintenance Margin Required = 17.5 + 60 = 77.5 ETH 

 

As a result, we can see that when an order is not filled, the order maintenance margin is calculated based on the corresponding MMR of the tier determined by the (position value + order value) instead of the tiered-based calculation. 

 

Assuming the buy order is now filled. The total maintenance margin required has now become:

 

Average Entry Price = [(8,000,000 / 4,000 ) + (8,000,000 / 2,000 )] / 16,000,000 = 2666.67 USD

Position Value = 16,000,000 USD / 2666.67 = 6,000 ETH (Tier 3)

Initial Margin = 6,000 / 10 = 600 ETH

Maintenance Margin = 6,000  x 1.5% - 17.5 = 72.5 ETH

 

After the order is filled, the overall maintenance margin required is reduced to 72.5 ETH. This means the position can withstand a maximum unrealized loss of 527.5 ETH (600 ETH - 72.5 ETH) before the liquidation is triggered.

Conclusion

​​Understanding the calculation process for both position and order maintenance margins is essential for traders to manage their risk effectively on Bybit. By comprehending how these margins are calculated, traders can make informed decisions to reduce liquidation risk and optimize their trading strategies.