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Question regarding Margin Trading and Liquidation price

Binance

Cryptocoins Exchanges / Binance 263 Views

At the Isolated Margin Trading Rules we read the following:

LR will vary according to different leverages. For example, the LR for 3x leverage is 1.18, for 5x leverage, it is1.15 while for 10x leverage, it is 1.05.

LR stands for liquidation ratio. It is the Margin Level (ML) where liquidation will occur. ML calculation is as follows:

In this rule, the margin level of the Isolated account = the total value of assets under the Isolated account / (total value of liabilities + unpaid interest)

There also exists a Liquidation Price Calculator embedded in the margin trading page. As its name states, it allows quick calculation of Liquidation Price (assuming no interests exist). So I used this calculator to calculate liquidation price and then calculate the ML. I used ADA for this example and for simplicity I assumed its price was 1 BUSD

Entry price: 1 BUSD

Amount: 100 ADA

Balance: 10 BUSD

Borrow amount: 90 BUSD

Liquidation price: 0.945 BUSD

After that I used this result to calculate the ML associated with liquidation price:

ML = ADA * price / loan

ML = 100*0.945/90

ML = 1.05

So far so good, for x10 leverage 1.05 is the ML where liquidation occurs. But repeating this calculation using different leverage, say 3x leads to the same ML result. Let's see:

Entry price: 1 BUSD

Amount: 300 ADA

Balance: 100 BUSD

Borrow amount: 200 BUSD

Liquidation price: 0.7 BUSD

After this we calculate ML using the price given by the calculator

ML = ADA * price / loan

ML = 300*0.7/200

ML = 1.05

It's the same ML!!!!

The problem is according to the quote...

LR will vary according to different leverages. For example, the LR for 3x leverage is 1.18, for 5x leverage, it is1.15 while for 10x leverage, it is 1.05.

... this ML should be 1.18 for 3x leverage and not 1.05. For me it makes more sense for it to be 1.05 but I'm still confused by this result. I need to know which number is correct to manage my risks.

Any thoughts?

submitted by /u/brunobig2004
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