How do you monitor your liquidation margin and margin ratio in real-time when trading crypto?

1 What is liquidation margin?

Liquidation margin is the minimum amount of equity you need to maintain in your account to avoid liquidation. Equity is the value of your assets minus your liabilities, or in other words, your balance plus your unrealized profit or loss. If your equity falls below your liquidation margin, your position will be automatically closed by the exchange or broker to prevent further losses. The liquidation margin depends on the leverage you use, the initial margin you put up, and the maintenance margin required by the platform.

2 What is margin ratio?

Margin ratio is the percentage of your equity to your used margin. Used margin is the amount of money you need to open and maintain a leveraged position. It is usually a fraction of the total value of the position, depending on the leverage you use. For example, if you use 10x leverage, you need 10% of the position value as used margin. The margin ratio shows how much buffer you have before reaching your liquidation margin. The higher the margin ratio, the safer your position is. The lower the margin ratio, the closer you are to getting liquidated.

3 How to calculate liquidation margin and margin ratio?

To calculate your liquidation margin and margin ratio, you need to know your equity, your used margin, and your maintenance margin. The maintenance margin is the minimum percentage of used margin that you need to keep in your account to avoid liquidation. It is usually set by the exchange or broker and can vary depending on the market conditions and volatility. For example, if the maintenance margin is 0.5%, you need to have at least 0.5% of your used margin as equity to avoid liquidation.

The formula for liquidation margin is:

Liquidation margin = used margin x maintenance margin

The formula for margin ratio is:

Margin ratio = (equity / used margin) x 100%

For example, if you have $10,000 in your account and you open a $100,000 position with 10x leverage, your used margin is $10,000 and your equity is $10,000. If the maintenance margin is 0.5%, your liquidation margin is $50. Your margin ratio is 100%. If the price of the asset moves against you and your equity drops to $9,950, your margin ratio drops to 99.5%. If the price drops further and your equity reaches $50, your margin ratio reaches 0.5% and you get liquidated.

4 How to monitor liquidation margin and margin ratio in real-time?

There are different ways to monitor your liquidation margin and margin ratio in real-time when trading crypto. One way is to use the trading platform or app that you are using to open and manage your positions. Most platforms will show you your equity, used margin, liquidation price, and margin ratio on the dashboard or in the order details. You can also set alerts or notifications to warn you when your margin ratio reaches a certain level or when your liquidation price is approaching.

Another way is to use third-party tools or websites that can track your positions across different platforms and show you your overall liquidation margin and margin ratio. Some examples are BitmexRekt, Bybt, and CryptoMeter. These tools can also provide you with historical data, statistics, and analysis of liquidation events and trends in the crypto market.

A third way is to use your own spreadsheet or calculator to compute your liquidation margin and margin ratio based on the data you get from the platform or tool you are using. You can also use formulas or scripts to automate the calculation and update it regularly. This way, you can customize the parameters and indicators according to your preferences and risk tolerance.

5 How to avoid liquidation and manage your risk?

Monitoring your liquidation margin and margin ratio in real-time is essential for preventing liquidation and managing your risk when trading crypto with leverage. To do this, you need to have a clear trading plan, a sound risk management strategy, and a disciplined mindset. Appropriate leverage should be chosen to suit your trading style, experience, and goals. Additionally, position size should be proportional to your account size and risk appetite. Stop-loss and take-profit orders can help you limit losses and lock in profits. Diversifying your portfolio can reduce exposure to specific risks and volatility. You should also monitor the market conditions and adjust your positions accordingly. Finally, it's important to learn from mistakes in order to improve skills and strategies.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?