What is Margin?

What is Margin?

Margin is the collateral you deposit to open and maintain a leveraged trading position. It is the amount of your own capital that the exchange holds as security while you control a larger position through leverage. If your position moves against you and your margin runs out, you get liquidated.

Types of Margin

There are two key margin concepts you need to understand:

Initial Margin

Initial margin is the minimum amount required to open a new position. It is determined by the leverage you select.

Formula: Initial Margin = Position Size / Leverage

For example, to open a $1,000 position with 10x leverage, you need $100 as initial margin. With 5x leverage, you need $200.

Maintenance Margin

Maintenance margin is the minimum amount that must remain in your margin balance to keep your position open. It is always lower than the initial margin. If your balance falls below the maintenance margin due to unrealized losses, your position will be liquidated.

The maintenance margin rate varies by exchange and asset, but it is typically between 0.5% and 5% of the position size. This is the last line of defense before liquidation.

Cross Margin vs Isolated Margin

Exchanges offer two margin modes that fundamentally change how your margin works:

Cross Margin

In cross margin mode, your entire account balance is shared across all open positions. If one position is losing money, it can draw from your full account balance to avoid liquidation.

Advantages:

• Lower liquidation risk for individual positions.
• Profits from one position can offset losses in another.
• More efficient use of capital.

Disadvantages:

• A single bad trade can drain your entire account.
• Harder to manage risk for individual positions.
• Potential for larger total losses.

Isolated Margin

In isolated margin mode, each position has its own dedicated margin. If a position is liquidated, only the margin assigned to that specific position is lost. The rest of your account remains untouched.

Advantages:

• Losses are contained to each position’s allocated margin.
• Easier to manage risk per trade.
• Protects the rest of your account from a single bad trade.

Disadvantages:

• Higher liquidation risk for individual positions (less margin buffer).
• Requires more active management.
• Less capital-efficient.

Comparison Table

Margin Calls and Liquidation

When your margin ratio (maintenance margin divided by your current margin balance) reaches a critical level, you may receive a margin call. This is a warning that your position is close to liquidation.

At this point, you have several options:

• Add more margin to your position to increase your buffer.
• Reduce your position size by partially closing the trade.
• Close the position entirely to prevent further losses.

If you take no action and the price continues moving against you, the exchange will liquidate your position automatically.

Margin in Grid Trading

Grid bots on perpetual futures use margin to maintain multiple positions simultaneously. When setting up a grid bot, it is important to ensure your total margin covers all potential grid positions. If the price drops and fills all buy orders in a long grid, your total margin usage will be at its maximum.

A common mistake is not accounting for the full margin requirement when all grid levels are filled. Always calculate your total potential exposure before starting a grid bot.

Summary

• Margin is your collateral for leveraged trades, with initial margin required to open positions and maintenance margin required to keep them open.
• Cross margin shares your entire balance across all positions (lower per-position liquidation risk, higher account risk), while isolated margin dedicates funds per position (contained losses).
• When running a grid bot, ensure your total margin covers the scenario where all grid levels are filled simultaneously.

Next Step

Understanding what happens when margin runs out is critical: What is Liquidation?