How Does Increasing Leverage Affect the Initial Margin Requirement?
Increasing leverage decreases the initial margin requirement. Leverage is the ratio of the position's notional value to the required initial margin.
For example, 10x leverage requires 10% initial margin, while 100x leverage requires 1%. A smaller initial margin means a smaller price movement is needed to reach the liquidation point.
Glossar
Notional Value
Scale ⎊ Notional Value refers to the total market value of the underlying asset controlled by a derivatives position, calculated by multiplying the contract size by the current market price, irrespective of the actual margin capital posted.
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.
Initial Margin Requirement
Definition ⎊ Initial margin requirement specifies the minimum amount of capital a trader must deposit into a margin account to open a new leveraged position in a derivative contract.
Leverage
Amplification ⎊ Leverage, within cryptocurrency, options, and derivatives, represents the utilization of borrowed capital to increase the potential return of an investment, fundamentally altering risk-reward profiles.