There are 2 types of margin in the digital assets markets in general - Isolated and Cross Margin. HitBTC’s Margin Trading feature uses the Isolated Margin to give traders the means to control the risk levels of their positions. Isolated Margin enables them to add or remove assets that serve as collateral for a selected position, effectively altering the leverage of that position. In this way, positions that are about to be liquidated can be deterred from being passed on to the Liquidation Engine by adding more collateral.
A trader enters into a long BTC/USDT position at the BTC price of 10,000 USDT for 1 BTC (or 10,000 USDT) with collateral of 5,000 USDT – in other words, leverage of x2 is applied. This means that the total assets that a trader is risking are 5,000 USDT and the position can absorb a significant drop (about 50% (5,000-10,000)/10,000 * 100 depending on the fees) in the price of BTC before being liquidated.
The trader believes that the price will go up without any significant drops and is willing to increase the leverage to x10 by reducing the margin (collateral) accordingly – to 1,000 USDT. Now, however, approximately 1,000 USDT (nearly 10%) drop in the price of BTC will be enough for the position to be liquidated. The required drop in price is approximate as it does not account for fees.
Please note, we’re not offering any financial advice. It’s worth researching the topics of cryptocurrency, trading, and investing on your own or reaching out to professional advisors.