In margin-trading, a margin deposit is an amount of capital locked-up by the trader to cover their own counterparty risk. If an open position moves against a trader, the margin deposit ensures that the position does not become insolvent and that the trader is able to meet their obligation to close the position. (In the case that a position is close to becoming insolvent, a liquidation for that position will be triggered.)
A smaller margin deposit is necessary for positions with higher leverage, however such positions also open closer to the liquidation price of the traded asset pair.
What Assets can I use for a Margin Deposit?
Currently, the margin-deposit must be paid in the collateral asset. For example for ETH longs in the ETH-DAI market, the margin deposit is paid in ETH. For ETH shorts in the ETH-DAI market, the margin deposit is paid in DAI. This is to prevent having to "cross the spread" with your margin-deposit when opening a position.
If you would like to use any asset as a margin-deposit, then you can do so by using the Cross-Trading feature (instead of doing Isolated Trades).
How is the Margin Deposit Amount Calculated?
Based on the position type (long vs short), size, leverage, and the current oracle prices, the necessary amount of borrow and amount of collateral is calculated. For example, a 2X long position will be exactly 200% collateralized (according to the current oracle prices) after opening.
Using the size of the position and the current state of the orderbook, the amount of collateral gained by executing a trade is then estimated. The margin-deposit will then be calculated as the remainder of the necessary collateral amount to achieve the particular collateralization amount of the position.
Generally the margin-deposit will be the size of the position divided by the leverage. This number may be slightly off due to the orderbook spread or the small difference between the oracle prices and the orderbook prices.