Initial margin

Initial margin is the collateral you must put up to open a leveraged position. It equals position size divided by leverage: at 10x it is 10% of the position.

How it works

When you open a futures or margin trade, the exchange locks part of your funds as collateral. That is the initial margin. The higher the leverage, the smaller the margin and the closer the liquidation.

Initial margin is always larger than maintenance margin, the minimum needed to keep the position open. The gap between them is your buffer: how much loss the position can take before liquidation.

For large positions exchanges often raise requirements: the maximum leverage drops as position size grows (tiered risk limits). Besides margin, some fee may be reserved when the order opens.

Example with numbers

You open a $5,000 ETH long. At 20x, initial margin is $5,000 / 20 = $250. At 5x, it is $1,000. Same position, but at 5x price must move about 20% against you to liquidate it, while at 20x less than 5% does it.

Common mistake

A common mistake is thinking a trade's risk equals the initial margin and picking leverage to keep that margin small. Risk is set by position size and your stop, not by the margin. Work out position size from your stop and the loss you accept first, and only then choose margin and leverage.

Questions and answers

What is initial margin in simple terms?

It is the amount the exchange locks as collateral when you open a leveraged trade. Position size divided by leverage equals initial margin.

What is the difference between initial and maintenance margin?

Initial margin is needed to open the position. Maintenance margin is the minimum below which the position gets liquidated.

How do I calculate initial margin?

Divide position size by leverage. A $2,000 position at 10x needs $200 of initial margin, plus a small fee reserve.

Initial margin

How it works

Questions and answers

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