Margin
Borrowed funds used to increase position size and leverage.
Margin is collateral posted to open and maintain a leveraged trading or borrowing position. It allows exposure larger than the trader's own capital, while giving the lender, exchange, or protocol a buffer against loss. When that buffer becomes too small, the position may be liquidated automatically.
Initial margin is required at entry. Maintenance margin is the lower minimum that must remain as markets move. Equity includes collateral plus or minus profit, loss, fees, funding, and interest according to venue rules. A margin ratio or health indicator shows proximity to liquidation, but formulas differ substantially.
Cross margin shares collateral across several positions. Profits in one can support losses in another, but one bad trade can endanger the entire account. Isolated margin restricts collateral to one position, limiting contagion while allowing that allocation to be fully lost. Users should confirm the selected mode before trading.
Margin matters because it increases capital efficiency and supports hedging, short exposure, and market making. It also magnifies losses and creates forced execution. A position can be liquidated during a temporary price spike and miss a later recovery. Thin liquidity, oracle differences, and fees can make the final result worse than a displayed threshold.
Ongoing costs include borrowing interest, perpetual funding, trading fees, and slippage. Collateral itself can fall or depeg. Centralized venues add custody and insolvency risk, while DeFi adds smart contract, oracle, governance, and network risk. Stop orders are not guaranteed during gaps or outages.
Before using margin, read the product specification, liquidation method, collateral haircuts, fee schedule, and loss allocation. Model adverse moves, retain accurate records, and avoid maximum leverage. Margin is not free additional capital. It is a secured obligation whose safety depends on market movement, collateral quality, execution, software, and the trader's remaining buffer.
Traders should reconcile all cash flows rather than relying only on displayed profit and loss. Deposits, withdrawals, funding, interest, conversion, and liquidation fees change actual performance. They should also define what happens when the exchange, oracle, or network becomes unavailable. Additional collateral held elsewhere is useful only if it can reach the account before liquidation, which may be impossible during congestion or a platform freeze.
Frequently asked questions
- Initial margin is the collateral required to open a leveraged position. Maintenance margin is the minimum equity that must remain to keep it open. If losses reduce equity below that threshold, liquidation can begin. Exact calculations depend on notional size, leverage tier, collateral type, other positions, fees, and venue rules, so dashboard estimates require careful review.
- Perpetual markets use recurring funding payments between long and short positions to keep contract prices near spot. A trader may pay or receive funding depending on position direction and market imbalance. Rates can change rapidly and accumulate during a long hold. Positive price movement may still produce a poor net result after funding, trading fees, and borrowing costs.
- Use low leverage, small position sizes, conservative collateral, isolated margin when appropriate, and predefined loss limits. Monitor liquidation price, funding, interest, oracle prices, and venue health. Model price gaps and do not rely only on stop orders or alerts. Keep essential funds outside the account and understand how cross margin can expose unrelated positions to one loss.