Crypto Spot, Margin, and Futures Mechanics and Liquidation Risk
Summary
This document compares crypto spot, leveraged spot, and futures trading. It explains that spot positions are not subject to liquidation in the described framework, while borrowed margin positions and futures can be forcibly closed. It outlines long and short exposure, borrowing costs, trading fees, and perpetual futures funding payments, then gives examples of profit calculations for linear and inverse contracts.
The document also estimates liquidation thresholds using account equity, borrowed balances, accrued interest, contract exposure, and maintenance margin. Its examples illustrate how leverage can magnify gains and losses and how inverse contracts express profit in the collateral asset. The calculations are illustrative and rely on exchange-specific assumptions and stated fee or margin figures; actual liquidation rules and costs can vary by venue and account settings.
Key ideas
- Spot trading is described as avoiding liquidation, while leveraged positions can be liquidated when collateral becomes insufficient.
- Margin risk can be monitored by comparing account asset value with borrowing and accrued interest.
- Linear futures profit calculations follow price changes multiplied by position quantity.
- Inverse contracts can express realized profit in the underlying collateral asset.
- Perpetual futures may incur funding payments at scheduled intervals, in addition to trading fees.
- Maintenance margin and leverage affect the estimated liquidation price.
Tags
From a private course collection; the original is not published.