Margin Ratio

What Is Margin Ratio?

The margin ratio is a critical risk indicator widely used in leveraged trading, options trading, perpetual contracts, and other trading scenarios. By comparing the available funds in an account with the minimum funds required to maintain open positions, the margin ratio indicates whether the account can support its current holdings and helps traders effectively assess and manage risk.

In actual trading, the margin ratio primarily serves two purposes: risk alerts and liquidation prevention. When the margin ratio is above the safety threshold, the account has ample funds to withstand market volatility. If the margin ratio drops below the platform’s maintenance requirement, the system will trigger forced liquidation—automatically reducing or closing positions to protect both traders and the platform from further loss.

Margin ratio requirements vary by trading type. Leveraged trading generally demands a higher margin ratio to handle sharp price swings, while perpetual contracts may use dynamic adjustments. Understanding margin ratio mechanics and application scenarios is essential for improving trading security and capital efficiency.

How Margin Ratio Is Calculated

Calculation Formula

The margin ratio is calculated as follows:

Margin Ratio = (Total Cross-Asset Balance + Cross-Mode Profit and Loss – Pending Sell Order Amount – Asset Amount Required for Options Buy Orders – Asset Amount Required for Isolated Positions – All Pending Order Fees) / (Maintenance Margin + Liquidation Fee)

Explanation of Formula Components

This formula comprehensively accounts for the account’s capital status, open orders, funds allocated to various trading modes, and potential fees, ensuring thorough and accurate risk evaluation:

• Total Cross-Asset Balance: The total amount of a specific cryptocurrency held in the account, including both available and locked but unused funds. This is the primary source for margin calculation.

• Cross-Mode Profit and Loss: Unrealized gains or losses from price changes in cross-margin mode. Gains increase available margin; losses decrease it.

• Pending Sell Order Amount: Assets locked in sell orders that are placed but not yet executed. These are deducted from available margin.

• Asset Amount Required for Options Buy Orders: When buying options, premiums are paid and locked until expiration or closing. The platform reserves these funds to guard against price fluctuations.

• Asset Amount Required for Isolated Positions: In isolated margin mode, each position’s margin is calculated independently. The system reserves appropriate funds for each position to ensure risk segregation.

• All Pending Order Fees: Fees—maker and taker—incurred when placing open orders, deducted from available margin in advance.

• Maintenance Margin: The minimum total funds required to maintain all current positions, comprising the sum of maintenance margins for leveraged trades, delivery contracts, perpetual contracts, and options. This is the final safeguard against liquidation.

• Liquidation Fee: The platform’s fee for executing liquidation when the margin ratio falls below the maintenance requirement. Including this fee ensures a more accurate risk assessment.

Calculation Logic Explained

The margin ratio’s calculation logic reflects the platform’s comprehensive risk management approach. The numerator represents the actual available funds after subtracting locked or soon-to-be-locked amounts; the denominator is the minimum required to maintain current positions. This structure allows the system to monitor account risk in real time, issue timely warnings as the ratio approaches or drops below the threshold, and prevent sudden risk shifts due to order execution or market volatility—thereby effectively reducing liquidation risk.

Margin Ratio Management

Margin ratio management is a core part of risk control and directly determines whether traders can maintain stable capital during market fluctuations. Effective management not only lowers liquidation risk but also increases capital efficiency and trading flexibility.

How to Improve Margin Ratio

Traders can proactively strengthen their margin ratio and enhance account resilience in several ways:

• Add More Margin: Deposit more funds to directly boost your margin ratio, giving positions a larger safety cushion.

• Reduce Leverage: Lowering your leverage reduces maintenance margin requirements, thereby increasing the margin ratio. This is a standard risk control tactic during volatile periods.

• Reduce Position Size: Close part of your profitable or losing positions to reduce maintenance margin usage and immediately raise your margin ratio.

• Cancel Unfilled Orders: Cancel unnecessary open orders to free up locked funds and fees, increasing available margin.

Dynamic Platform Adjustments

Major trading platforms typically adjust margin requirements dynamically based on market conditions and position risk:

• Market Volatility Adjustment: During sharp market swings, platforms may raise maintenance margin requirements to manage rapid price change risk.

• Tiered Margin System: Maintenance margin ratios increase as position size grows, controlling systemic risk from large holdings.

• Differentiated Margin Ratios: Different trading types (such as leveraged trading, delivery contracts, perpetual contracts, options) each have their own margin ratios, reflecting their unique risk profiles.

Risk Alerts and Practical Tips

To avoid forced liquidation due to a low margin ratio, traders should:

• Set a Safety Threshold: Translate your personal risk tolerance into a specific margin ratio—such as setting your safety line at 150% of the maintenance margin ratio.

• Monitor Accounts Regularly: Closely track margin ratio changes, especially during volatile periods or major events, and adjust positions promptly.

• Reserve Emergency Funds: Keep a portion of idle funds in your account so you can quickly add margin if needed, avoiding involuntary liquidation.

• Use Stop-Loss Orders Wisely: Set reasonable stop-loss levels so your positions close automatically if the market moves against you, preventing rapid margin ratio declines and larger losses.

The essence of margin ratio management is balancing risk and reward. By deeply understanding its structure and the factors that impact it, traders can pursue returns while effectively managing downside risk, maintaining robust capital, and increasing both long-term trading success and sustainability.

FAQ

What Is Margin Ratio and What Does It Do?

The margin ratio is the proportion of your account’s margin to the total amount borrowed. It ensures you have enough funds to cover risk, prevents excessive leverage, and determines when forced liquidation is triggered. The higher your margin ratio, the safer your account. If it drops below the liquidation threshold, you face the risk of forced liquidation.

How Is Margin Ratio Calculated?

The margin ratio is the ratio of account margin to position value. The formula is: Margin Ratio = (Account Equity ÷ Notional Position Value) × 100%. A higher margin ratio means lower risk. If it falls to the liquidation threshold, your position will be liquidated.

What Are the Risks and Consequences of a Low Margin Ratio?

A low margin ratio increases the risk of forced liquidation. When asset prices move against you and account equity falls below the minimum, the system will automatically liquidate positions to prevent further loss. This can lead to larger losses and trading interruptions.

How Does Margin Ratio Differ in Futures, Stocks, and Forex?

Futures margin ratios usually range from 5%–15%, stocks are typically 50%, and forex can be as low as 1%. Futures and forex involve higher leverage, while stocks carry lower risk. Margin requirements depend on market volatility and liquidity differences.

What Happens If Margin Ratio Falls Below the Maintenance Requirement?

If the margin ratio falls below the maintenance standard, the system triggers forced liquidation. Your positions will be partially or fully liquidated to restore the ratio to a safe level. Additional fees may apply during liquidation, so top up your margin promptly to reduce risk.

How Can Raising Margin Ratio Reduce Trading Risk?

Raising your margin ratio means supporting your positions with more capital and reducing leverage. This lessens the risk of forced liquidation and improves your account’s resilience. When markets are volatile, a higher margin ratio offers a larger buffer and helps protect your funds.