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How much additional margin do I need to reduce my risk during a margin call?
How much additional margin do I need to reduce my risk during a margin call?
Updated over 5 months ago

Steps to Calculate the Impact of Additional Margin:

  1. Initial Liquidation Price:

    • Formula:
      Initial Liquidation Price = (Average Buy Price × Position Size - Initial Margin) / (Position Size × (1 + Maintenance Margin Rate))

    • Explanation:
      To calculate the initial liquidation price, start by multiplying the average buy price of the asset by the position size (the amount of the asset you're holding). From this product, subtract the initial margin (the collateral you've posted). Next, divide the result by the position size multiplied by one plus the maintenance margin rate (the minimum collateral required to maintain the position). This final value is your initial liquidation price, where your position would be automatically closed to prevent further losses.

  2. New Liquidation Price:

    • Formula:
      New Liquidation Price = (Average Buy Price × Position Size - (Initial Margin + Additional Margin)) / (Position Size × (1 + Maintenance Margin Rate))

    • Explanation:
      To calculate the new liquidation price after adding additional margin, use a similar process. Multiply the average buy price by the position size, then subtract the sum of the initial margin and the additional margin. Divide this result by the position size multiplied by one plus the maintenance margin rate. The new liquidation price reflects the adjusted price at which your position would be liquidated after factoring in the additional margin.

  3. Percentage Change in Liquidation Price:

    • Formula:
      Percentage Change = ((New Liquidation Price - Initial Liquidation Price) / Initial Liquidation Price) × 100

    • Explanation:
      To determine the percentage change in the liquidation price, subtract the initial liquidation price from the new liquidation price. Divide this difference by the initial liquidation price, then multiply the result by 100 to express the change as a percentage. This percentage indicates how much the liquidation price has shifted due to the added margin. The more margin you add, the further the liquidation price moves from your entry price, making the position safer.

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