Margin
Margin is the collateral a trader provides to open and maintain a leveraged trading position. It is not the same as the total value of the position.
✦ Key Insight
Understanding margin is essential for futures and leveraged trading because it determines how much capital supports the position and how close the trader may be to liquidation. Two important concepts are: Initial margin: collateral required to open a position. Maintenance margin: minimum collateral needed to keep the position open.
✕ Common Misconceptions
Confusing margin with notional value
Using almost all available account margin
Ignoring maintenance margin
Adding margin without reassessing a bad trade
Assuming more margin changes the market direction
Failing to understand isolated versus cross margin
Detailed Explanation
How It Works
Suppose a trader wants $20,000 of BTC exposure with 5x leverage.
Approximately $4,000 of margin supports the $20,000 notional position.
If BTC moves against the trader, losses reduce the available margin.
Once the account or position falls below the applicable maintenance-margin requirement, the exchange may begin liquidation.
Different platforms use different formulas.
FAQs
Is margin borrowed money?
Margin is the collateral supporting leveraged exposure. The exact financing structure depends on the product.
Does adding margin prevent liquidation forever?
No.
Is margin required for spot trading?
Normal unleveraged spot purchases do not require derivatives-style margin.
In Practice
Dig Deeper
Cross Margin
Margin mode where all account balance and unrealized profits/losses are shared as collateral across all open positions.
Liquidation
Liquidation occurs when a leveraged trading platform forcibly reduces or closes a position because the trader no longer has enough margin to satisfy the required maintenance margin.