What is Order Cost, Initial Margin, and Maintenance Margin?

Order by Cost

Bitflex has launched a new feature through which traders can place order using order cost. When you open the trade page, order by quantity is selected by default.

If you wish to open a trade using order by cost, you can click on the BTC button in the highlighted tab and select USDT.

Order by Cost:

Calculating Order Cost

Order cost works the same way as order quantity. However, instead of quantity of an asset, the cost entered by the trader is used to calculate the initial margin required. Here’s how it is calculated: 

• Buy/ Long Positions & Sell/ Short Positions

Order Cost = Initial Margin + Fee to Open Position + Fee to Close Position

- Initial Margin = (Order Price × Order Quantity) / Leverage

- Fee to Open Position = Order Quantity × Order Price × Fee Rate

- Fee to Close Position = Order Quantity × Closing Price × Fee Rate

Initial Margin

In order to open a perpetual contract, a trader has to deposit an amount as collateral. This deposited amount is known as initial margin. So, initial Margin is the minimum amount of money a trader must pay to open a leveraged position (either long or short). If his position is liquidated, the trader loses his initial margin.

Initial margin is inversely proportional to the leverage used. It means, the higher the leverage, the lower the initial margin required to open a trade. Here’s the formula of how it works.

Initial Margin = (Order Price × Order Quantity) / Leverage

For example, suppose a trader wants to open a long position for 1 BTC at $10,000 and with a leverage of 10x.

The initial margin required will be:

=$10000 x 1/10

=$1000

In the isolated margin mode, the trade can also adjust his initial margin after opening a position. It will also have an effect on his liquidation price.

Maintenance Margin

While initial margin is the amount required to open a position, maintenance margin is the amount of money that a trader must keep in his account to continue holding that position. Minimum maintenance margin depends on your leverage and the contract pair you are holding.

Maintenance Margin =Maintenance Margin Rate x Order Value

Maintenance Margin Rate = 1/Leverage

Order Value = Order Quantity x Entry Price

For example, suppose a trader wants to open a long position for 1 BTC at $10,000 and with a leverage of 20x.

The maintenance margin required will be:

Maintenance Margin Rate = 1/20

= 0.05

Order Value = 1 x $10,000

= 10,000

Maintenance Margin =0.05 x 10,000

= $500