Advantages of Cross Margin Mode
In isolated margin mode, each position’s margin is managed separately. This means traders must close positions or withdraw funds before making new trades after earning a profit. Cross margin mode removes these extra steps, making fund management more flexible and efficient. Additionally, KuCoin’s cross margin mode offers the following advantages:
1. Maximum Open Position
In isolated margin mode or within the industry, the maximum position size is usually limited by risk limits. However, KuCoin’s cross margin mode uses a new algorithm that allows higher leverage to create larger positions with the same funds.
Benefits:
1. Avoiding High Leverage Limits: Under the risk limits of isolated margin mode, 100x leverage might allow for a maximum of 1 BTC position, while 50x leverage might allow for 5 BTC position. Therefore, with enough funds, choosing 100x leverage actually results in a smaller position.
2. No Need for Frequent Risk Limit Adjustments: Previously, users had to adjust risk limits or lower leverage to increase their position size. During this process, it might be impossible to adjust because of large positions or insufficient margin. In cross margin mode, no adjustments are needed. The system automatically calculates the maximum open position based on your funds and chosen leverage.
2. Margin Occupancy and Hedging
Usually, when placing an order, the margin is occupied before the order is filled to ensure the user has enough funds to cover the position margin. Traditionally, margin is required for both long and short positions. However, in cross margin mode, the margin for long and short positions can be hedged, so only the necessary margin is charged based on the positions and orders.
Margin for the same futures position order = max(abs(Position + Margin required for orders in the same trading direction), abs(Margin required for orders in the opposite trading direction)). If the size of opposite-direction orders are smaller than the positions, no margin is required.
Example:
Assume a user holds 100 long contracts, requiring 100 USDT margin. If a buy order occupies 100 USDT margin and a sell order for 200 contracts is placed, 100 contracts do not require margin (offset by the position), and the remaining 100 contracts require 250 USDT margin.
The final margin charged = max(abs(100 + 100), abs(250)) = 250 USDT.
According to the traditional algorithm, the margin charged = 100 + 100 + 250 = 450 USDT.
3. IMR and MMR
The calculation is more reasonable and efficient for the initial margin rate (IMR) and maintenance margin rate (MMR) for cross margin.
Initial Margin Rate (IMR): Generally, IMR is calculated as 1/leverage. However, it also factors in the Maintenance Margin Rate (MMR), especially if the MMR is higher than 1.3 times.
Maintenance Margin Rate (MMR): Mainly related to the user’s position and order size. The larger the position and order size, the larger the MMR. KuCoin’s IMR and MMR calculations are more continuous, avoiding the need to identify different risk limit levels like other platforms. There is a certain distance maintained between them to prevent minor fluctuations from triggering forced position reductions.
Example:
Assume a user holds 1 BTC/USDT contract, then MMR = (1 + N/m) * (1 / 2 / Maximum Leverage Constant) = (1 + 1/300) * (1/2/100) = 0.5%.
4. Risk Rate
The risk rate for cross margin is calculated by dividing the maintenance margin by the equity. KuCoin’s maintenance margin considers both positions and orders, not just positions. This prevents the overall risk rate of the account from rising quickly and even leading to negative account balance if an order is not canceled in time during extreme market conditions.
When calculating the maintenance margin, KuCoin’s risk rate analysis considers the worst-case scenario for both long and short orders. Positions and orders in different trading directions may offset each other, reducing part of the maintenance margin requirement. This method makes the maintenance margin requirements more reasonable, avoiding excessive margin requirements from simply adding up all orders and positions directly.
Example:
Assume a user holds 1 BTC/USDT contract, and has 2 BTC/USDT contract buy orders and 3 BTC/USDT contract sell orders.
The required maintenance margin = max(1 + 2,1 - 3) * Mark Price * MMR = 3 * Mark Price * MMR = 3 * 60,000 * 0.5% = 900
This is more reasonable than the following formula: 6 * Mark Price * MMR = 6 * 60,000 * 0.5% = 1,800
(Assuming the current mark price of BTC/USDT contract is 60,000, MMR is 0.5%)
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