How Does Increasing Leverage Affect the Required Initial Margin for a Perpetual Contract Position?
Increasing leverage decreases the required initial margin. Leverage is essentially the ratio of the total position value to the initial margin.
For example, 10x leverage means the initial margin is 1/10th (10%) of the notional value. Higher leverage allows a trader to control a larger position with less capital, but it also increases the risk of liquidation.
Glossar
Required Initial Margin
Collateral ⎊ Required Initial Margin represents a quantified amount of capital, stipulated by exchanges or clearinghouses, that a participant must deposit as a performance bond prior to establishing a derivatives position, functioning as a first line of defense against counterparty credit risk.
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.
Increasing Leverage
Amplification ⎊ Within cryptocurrency derivatives and options trading, increasing leverage represents a strategic intensification of exposure to underlying assets, often facilitated through margin trading or options contracts.
Leverage Impact
Amplification ⎊ Within cryptocurrency derivatives and options trading, amplification describes the magnified effect of underlying asset price movements on derivative contract values, a consequence of inherent leverage.
Total Position Value
Valuation ⎊ Total Position Value, within cryptocurrency derivatives, represents the aggregate monetary exposure stemming from all holdings in a specific instrument or across a portfolio, factoring in both long and short positions.