Initial Margin & Maintenance Margin

Anúncios Initial Margin & Maintenance Margin

2022-10-18 09:59:18 UTC 17267 Lido

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## Definition

**Initial Margin:** also known as entry margin, refers to the minimum margin required to open a position.

**Maintenance Margin: **refers to the minimum level of funds required to maintain a position. If the current position margin is lower than the maintenance margin, the position will be liquidated.

## Who Needs to Pay Options Margin?
Sellers (shorts) need to pay a margin.
Buyers do not take up margin.
When the buyer pays the premium, the right has been bought out and there is no need to pay a margin.

## Initial Margin Calculation

The initial margin calculation is different according to the options type, and the calculation method is as follows:

### Call Options

> Initial Margin = Unit Initial Margin × Contract Multiplier × ABS (Position Amount)

Unit Initial Margin = MAX( 15% × Underlying Price - OTM, 10% × Underlying Price ) + Mark Price

Underlying Price = BTC/USDT Index Price

Call Options OTM = Max (0, Strike Price - Underlying Price)

Mark Price: the option price calculated based on the Black-Scholes pricing model

### Put Options

> Initial Margin = Unit Initial Margin × Contract Multiplier × ABS (Position Amount)

Unit Initial Margin = MAX [10% x Underlying Price x (1 + Mark Price/underlying Price), 15% x Underlying Price - OTM ] + Mark Price

Put Options OTM = Max (0, Underlying Price - Strike Price)

### For Example

Trader A places an order to open a short call option, the order details are as follows:

Options: BTC_USDT-20221028-20000-C
BTC/USDT Index Price: $15,000
Mark Price: $150
Contract Multiplier: 0.01
Amount: -1 contract

The unit initial margin is calculated as follows:
= MAX( 15% × $15,000 - $5,000, 10% × $15,000 ) + $150= $1,500 + $150 = $1,650

The position initial margin is calculated as follows:
= $1,650 × 0.01 × 1 = $16.5

## Maintenance Margin Calculation

> Position Maintenance Margin =  Unit Maintenance Margin x Contract Multiplier x ABS (Position Amount)

### Call Options

Unit Maintenance Margin = 7.5% × Underlying Price + Mark Price

### Put Options

Unit Maintenance Margin = MAX (7.5% × Mark Price, 7.5% × Mark Price ) + Mark Price

### For Example

Trader B places an order to open a short call option. The details of the current position are as follows:

Options: BTC_USDT-20221028-20000-C
Order Price: $200
BTC/USDT Index Price: $15,000
Mark Price: $150
Contract Multiplier: 0.01
Amount: -1 contract

The position maintenance margin is calculated as follows:
= ( 7.5% × $15,000 + $150 ) × 0.01 × ABS(-1) = $1,275 × 0.01 × 1 = $ 12.75

## Order Margin

When placing an order, the user needs to freeze a certain amount of funds to ensure that the order can be completed, the buyer can pay the premium in ful and the seller has enough margin to maintain the position, and at the same time, it also restricts the user to place a large number of pending orders without cost.

### Bids
Order Margin = Premium + Trading Fee
### Asks
Order Margin = MAX (Initial Margin - Premium’, 0) + Trading Fee

Premium‘ = MIN (Mark Price, Order Price) x ABS (Order Amount) x Contract Multiplier

### Note:
1. When you sell a long option, the amount of pending orders is less than that of long positions, then the order margin is not frozen. When the amount of pending orders is more than that of positions,  only the margin higher than the position is frozen.
2. When you sell the option, you will receive the premium paid by the other party immediately when the pending order is filled, and the frozen funds need to be subtracted from the premium received.
3. The total frozen order margin is the sum of the individual pending order margins.

Gate.io reserves the final right to interpret the product.

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