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?
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