What are the differences between Available Balance, Margin Balance, and Total Balance on LBank Futures?
Crypto futures offer a significant benefit: the opportunity for margin trading. With margin trading, you can open positions that exceed your account balance. However, the concept of “margin” is frequently misunderstood. In this article, we will clarify the confusion surrounding two commonly confused terms in the futures trading sector: Available Balance, Margin Balance and Total Balance. While these terms may appear similar, they actually represent distinct concepts. Understanding the difference between them can potentially help you save money on fees.
What is Total Balance?
Total balance encompasses the comprehensive amount of funds accessible within your wallet. It combines your wallet balance, which includes the total of your deposits, realized profits and losses (PNL), and withdrawals, with your margin balance, which also incorporates unrealized PNL. By incorporating both wallet and margin balances, the total balance provides a holistic view of your financial resources, including both realized and potential gains or losses.
What is Available Balance?
The available balance in your account signifies the amount of money you can currently spend. It serves as a measure to determine if you have sufficient funds to cover a trade. The available balance is calculated based on deposits, withdrawals, and pending positions in your account.
To determine the available balance in your LBank Futures wallet, you can use the following formula:
Available Balance = Wallet Balance — Initial Margin + Unrealized PNL
This calculation allows you to find the amount of funds that you can readily access and use for trading or other purposes. The wallet balance refers to the total value of funds held in your LBank Futures wallet. By subtracting the initial margin, which is the collateral required for your positions, and adding the unrealized PNL (Profit and Loss), you can obtain the available balance.
Occasionally, you may notice that your available balance is lower than your current balance. In such cases, you can only utilize your available balance, or potentially less if the remaining funds are being held in different trade positions.
What is Margin Balance?
When opening and maintaining a new trade, you only need to allocate a small amount of capital known as margin. Each position you open will have its own required margin value, which is the amount of funds that will be “blocked” as collateral.
The margin balance is determined by adding or subtracting the unrealized PNL (Profit and Loss) of your open positions to or from your wallet balance. This balance represents the funds used as margin to hold your current positions.
In simpler terms, the margin balance reflects the total funds currently utilized as collateral for your open positions.
The margin balance can be calculated using the formula:
Margin Balance = Wallet Balance + Unrealized PNL
Let’s illustrate this with an example. Suppose you want to buy or enter into a BTCUSDT contract position. You don’t need to have 100USD in your account balance; instead, you only need to allocate a portion, which can be as little as 20 USDT. So in practical terms, your margin balance is $20 USDT (used as collateral) and once an open trade exceeds the free margin balance, the trade becomes liquidated.
The concept of free margin can be understood in two distinct yet interconnected ways. Firstly, it represents the funds available to initiate new positions in the market. Essentially, it indicates the amount of capital you can allocate towards opening fresh trades.
Secondly, free margin also serves as a safeguard against potential losses. It signifies the maximum adverse movement existing positions can undergo before triggering a margin call or stop order. In essence, free margin plays a crucial role in both capital allocation for new trades and risk management for existing positions.
Understanding the nuances between the available balance, margin balance, and total balance are vital when managing a futures trading account. The available balance represents the immediate funds that can be withdrawn by the trader. On the other hand, the margin balance indicates the amount utilized as collateral for entering a position. The total balance encompasses both these elements, providing a comprehensive overview of the account’s financial status.
When initiating a position, LBank will honor it as long as it remains within the margin balance limits. However, it is crucial to exercise caution and avoid utilizing funds allocated for other purposes. Additionally, overleveraging should be avoided to prevent premature exit from a position. By maintaining a balanced approach and responsible trading practices, traders can navigate the futures market more effectively.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.