How Do Leverage Ratios Influence Initial Margin Requirements?
Leverage is inversely related to initial margin. A higher leverage ratio (e.g.
50x) means a smaller initial margin percentage is required (e.g. 2%).
Conversely, a lower leverage ratio (e.g. 10x) requires a larger initial margin percentage (e.g.
10%). The margin ensures the trader can cover potential losses proportional to the risk taken.
Glossar
Initial Margin Percentage
Collateral ⎊ The initial margin percentage, within cryptocurrency derivatives and options trading, represents the portion of the total margin requirement that must be posted upfront as collateral.
Leverage Ratios
Amplification ⎊ Leverage ratios within cryptocurrency derivatives represent the extent to which gains, and critically, losses, are magnified through the use of borrowed capital or contractual obligations.
Initial Margin
Collateral ⎊ Initial margin represents the equity a trader must deposit with a broker or exchange as a good faith commitment to cover potential losses arising from derivative positions, notably within cryptocurrency markets.