How Does the Choice of Margin Type Affect the Liquidation Price?
The choice of margin type significantly affects the liquidation price. Isolated margin results in a liquidation price closer to the entry price because the collateral is limited.
Cross-margin uses the entire account balance, pushing the liquidation price much further away from the entry price, providing a larger buffer against liquidation.
Glossar
Collateral
Requirement ⎊ Collateral in derivatives trading represents the assets pledged by a market participant to secure their obligations, mitigating the counterparty risk associated with open positions.
Entry Price
Price ⎊ In cryptocurrency and derivatives markets, the entry price denotes the initial cost incurred to establish a position.
Isolated Margin
Segregation ⎊ Isolated Margin is an account setting where the margin allocated to a specific derivative position is strictly segregated from the collateral supporting other positions, preventing losses in one trade from impacting the maintenance margin of another.
Margin Types
Category ⎊ Margin types refer to the distinct categories of collateral required in financial derivatives trading, each serving a specific risk management function.
Liquidation Price
Trigger ⎊ The Liquidation Price is the specific market price level at which a trader's margin equity falls to the maintenance margin threshold, causing the exchange or protocol to automatically close the leveraged position to prevent the account balance from falling into negative territory.