Knowing how to calculate Initial Margin and Maintenance Margin under Cross Margin is a key concept that traders need to understand before trading on margin. Let's run through these two terms before proceeding with the calculations.

 

• Initial Margin (IM) is the minimum required margin to open a position. 

• Maintenance Margin (MM) is the minimum amount of funds required to maintain a position. Do note that positions will be liquidated when the margin drops below the Maintenance Margin level. 

 

Please note the following features of Options trading:

• When purchasing an Option, the buyer needs to pay a premium to own the Call or Put Option. Long Options do not require a Maintenance Margin.

• When selling an Option, a Short Option requires a Maintenance Margin to ensure that the seller can meet their obligations if the Option is exercised.
  
   

• MM Calculation
• IM Calculation
  • Account Order IM Calculation
  • Account Position IM Calculation

MM Calculation

 

Long Options Positions: As mentioned above, Maintenance Margin is not required when a trader buys a Call Option or a Put Option.

Short Options Positions: Maintenance Margin is required.

 

Therefore, Account MM is the total Maintenance Margin required for short Options positions.

 

Formula

Account MM% = Account MM / Margin Balance × 100%

Account MM = Sum (Short Position MM) 

Position MM = [Max (MM Factor × Index Price, MM Factor × Option Mark Price) + Option Mark Price + Liquidation Fee Rate × Index Price] × ABS (Position Size)

 

 

Example 1

Suppose a trader sells 1 BTC BTC-31JUN22-31000-C, and holds this short position. The BTC index price is $30,000 and the Option mark price is $300. 

 

The position MM for this short position is 1,260 USDC. The calculation is as follows: 

Position MM = [Max (3% × 30,000, 3% × 300) + 300 + 0.2% × 30,000] × ABS (−1) = 1,260 USDC

 

If the trader only holds this position in their account with a margin balance of $10,000, the account MM% is 12.6%, which is calculated as 1,260/10,000.

 

 

 

 

 

 

 

 

IM Calculation

Account IM is a combination of Account Order IM and Account Position IM. 

• Account Order IM is calculated based on orders placed by traders.

• Account Position IM is calculated from the positions that traders hold in their accounts.

 

Similar to the way in which MM is calculated, only short positions have Position IM. 

 

Formula

Account IM% = Account IM / Margin Balance × 100%

Account IM = Account Order IM + Account Position IM

 

 

Account Order IM calculation

Account Order IM = Sum (Order IM)

 

Order IM is calculated under four different trading types:

• Buy to Open

• Sell to Open

• Buy to Close

• Sell to Close

 

 

Buy to Open

To buy an Option, the Order IM is the premium plus the trading fee.

 

Formula

Order IM = Premium + Trading Fee

• Premium = Order Size × Order Price

• Trading Fee = Min (Taker Fee Rate × Index Price, Maximum Proportion of Transaction in Order Price × Order Price) × Order Size

 

Example 2

Suppose Trader A places an order to buy 1 BTC BTC-31JUN22-30000-C with the order price at $300, and the BTC index price is $30,000.

 

The Order IM for this order is 306 USDC. The calculation is as follows: 

Order IM = 300 + 6 = 306 USDC

• Premium = 1 × 300 = 300 USDC

• Trading Fee = Min (0.02% × 30,000, 12.5% × 300) × 1 = 6 USDC

 

 

 

Sell to Open

The IM of an order to sell an Option will be higher than the IM of an order to buy an Option, due to the use of margin. If the order is filled, the Initial Margin of an Options order is close to the Initial Margin of the position.
 

Formula

Order IM = Max (Order IM’, Position MM) + Fee − Premium

• Order IM’ = [Max (Max IM Factor × Index Price − OTM Amount, Min IM Factor × Index Price) + Max (Order Price, Mark Price)] × Order Size 

• OTM Amount for Call Option = Max (0, Strike − Index Price) 

• OTM Amount for Put Option = Max (0, Index Price − Strike) 

• Premium = ABS (Order Size) × Order Price

• Trading Fee = Min (Taker Fee Rate × Index Price, Maximum Proportion of Transaction in Order Price × Order Price) × Order Size

Example 3

Suppose Trader B places an order to sell 1 BTC BTC-31JUN22-31000-C with the order price at $350, and the BTC index price and Option mark price are $30,000 and $300, respectively. 

 

The Order IM for this order is 3,506 USDC. The calculation is as follows:

Order IM = Max ([Max (0.15 × 30,000 − 1,000, 0.1 × 30,000) + Max (350, 300)] × 1, 1,260) + 6 − 350 = 3,506 USDC

• OTM Amount = 31,000 − 30,000 = 1,000 USDC

• Premium = 1 × 350 = 350 USDC

• Trading Fee = Min (0.02% × 30,000, 12.5% × 350) × 1 = 6 USDC

 

 

 

Buy to Close

Buying Options to close Short positions generally do not occupy any order IM. However, when the margin released by closing the position is not enough to pay the premium, the order IM will be occupied.

 

Formula

Order IM = Max (0 , Premium + Fee − Order IM’)

• Order IM’ = Order Size / Position Size × Min (Margin Balance / Account Position IM, 100%) × Position IM 

• Premium = Order Size × Option Order Price

• Fee = Order Size × Min (Taker × Index , Max Proportion of Transaction in Order Price × Option Order Price)

Example 4

Suppose Trader A only holds a short position of 2 BTC BTC-31JUN22-31000-C. The relevant parameters are as follows: 

 

Margin Balance: 10,000 USDC

Account Position IM: 2,000 USDC

Position MM: 800 USDC

 

Trader A wants to close half of the position, and places a buy order to close 1 BTC at $350. The BTC index price and Option mark price are $30,000 and $300, respectively.

 

The Order IM for this order is 0 USDC. The calculation is as follows:

Order IM = Max (0 , 350 − 1,000 + 6) = 0 USDC

• Order IM’ = 1/2 × Min (10,000/2,000, 100%) × 2,000 = 1,000 USDC

• Premium = 1 × 350 = 350 USDC

• Fee = 1 × Min (0.02% × 30,000 , 12.5% × 350) × 1 = 6 USDC

 

 

 

Sell to Close

To close long positions by selling Options, the Order IM is calculated based on comparing the Position MM and the premium received for the position to be closed.
 

Formula

• Order IM = MAX (0 , Fee + Position MM − Premium)

• Premium = ABS (Order Size) × Option Order Price

• Fee = ABS (Order Size) × Min (Taker × Index, MAX Proportion of Transaction in Order Price × Option Order Price)

Example 5

Suppose Trader B only holds a long position of 2 BTC BTC-31JUN22-31000-C. The relevant parameters are as follows: 

 

Margin Balance: 10,000 USDC

Account Position IM: 2,000 USDC

Position MM: 800 USDC

 

Trader A wants to close half of the position and places a sell order to close 1 BTC at $350. The BTC index price and Option mark price are $30,000 and $300, respectively.

 

The Order IM for this order is 56 USDC. The calculation is as follows:

Order IM = MAX (0, 6 + 400 − 350) = 56 USDC

• Position MM = 1/2 × 800 = 400 USDC

• Premium = 1 × 350 = 350 USDC

• Fee = 6 USDC
  
  
   

 

 

 

 

 

Account Position IM Calculation

This is similar to Position MM calculation, except holding short positions requires an Initial Margin. 
 

Formula

Account Position IM% = Account Position IM / Margin Balance × 100%

Account Position IM = Sum (Position IM)

Position IM = Max (Position IM’, Position MM) 

• Position IM’ = [Max (Max IM Factor × Underlying − OTM Amount, Min IM Factor × Underlying) + Max (Position Avg. Price, Option Mark Price)] × ABS (Position Size)

• OTM Amount for Call Option = Max (0 , Strike − Index Price) 

• OTM Amount for Put Option = Max (0 , Index Price − Strike) 

Example 6

Suppose Trader A sells 1 BTC BTC-31JUN22-31000-C and holds the short position. The relevant parameters are as follows: 

 

BTC Index Price: $30,000

Option Mark Price: $300

Average Entry Price: $350

Margin Balance: 10,000 USDC

 

The position MM for this short position is 1,260 USDC. The calculation is as follows:

• Account Position IM% = 3,850/10,000 = 38.5%

• Account Position IM = 3,850 USDC

• Position IM = Max (3,850, 1260) = 3,850 USDC

• Position IM’ = [Max (0.15 × 30,000 − 1,000, 0.1 × 30,000) + Max (350, 300)] × 1 = 3,500 + 350 = 3,850 USDC

• Position MM = 1,260 USDC (Please refer to Example 1 for calculation)

• OTM Amount for Call Option = Max (0, 31,000 − 30,000) = 1,000 USDC

 

 

 

 

 

 

 

 

Factors List

The details of different underlying asset parameters are as follows:

 

	BTC	ETH
MM Factor	3%	5%
Max IM Factor	15%	15%
Min IM Factor	10%	10%
Maximum Proportion of Transaction in Order Price	12.5%
Liquidation Fee Rate	0.2%
Taker Fee Rate	0.02%

 

Notes:

— In Cross Margin mode, when the buyer places an order, the premium and trading fees will be occupied as the margin portion. Once the order is filled, the Initial Margin will be adjusted according to the filled order value and deducted from the cash balance.

 

— In Portfolio Margin mode, the Initial Margin will not be occupied after the order is filled.

 

— Place an order in the opposite direction: When closing a position, if you select the reduce-only function, the order amount is limited up to the position amount.

 

— Place an order in the opposite direction: When closing a position, if you do not select the reduce-only function, the order amount is not limited by the amount of positions held. In this case, the calculation of the Order IM will calculate the closing position and the opening position, respectively.