How Does Leverage Offered by an Exchange Influence the Required Initial Margin?
Leverage is the ratio of the total contract value to the initial margin required. Higher leverage means the exchange requires a smaller initial margin deposit for the same contract size.
For example, 10x leverage means the initial margin is 10% of the contract value. While higher leverage increases potential profits, it also dramatically increases the risk of liquidation.
Glossar
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.
Leverage Offered
Amplification ⎊ Within cryptocurrency derivatives and options trading, amplification describes the magnified impact of underlying asset price movements on derivative contract values, a consequence of utilizing leverage.