What Is ‘Maintenance Margin’ and How Does It Relate to Liquidation?
Maintenance margin is the minimum amount of collateral a trader must maintain in their account to keep a leveraged position open. It is a lower threshold than the initial margin.
If the account's equity falls below the maintenance margin level, the position is automatically liquidated by the exchange's risk engine. This mandatory minimum ensures that there is a buffer to cover potential trading losses and liquidation fees before the account balance hits zero.
Glossar
Crypto Exchange Rules
Framework ⎊ Crypto exchange rules constitute the operational, compliance, and risk management guidelines established by centralized or decentralized platforms governing how participants can trade, leverage, and settle derivatives contracts.
Initial Margin versus Maintenance Margin
Threshold ⎊ defines the critical difference between the two margin types: Initial Margin is the minimum equity required to open a new leveraged position.
Automated Closing
Mechanism ⎊ Automated Closing represents a pre-defined set of instructions executed by a trading system to liquidate a derivative position upon the fulfillment of specific criteria, often related to margin requirements or time decay.
Margin Account Equity
Leverage ⎊ Margin account equity, within cryptocurrency and derivatives markets, represents the portion of an account’s total value directly owned by the trader, excluding borrowed capital utilized for increased exposure.
Crypto Derivatives
Synthetic Instruments ⎊ Crypto Derivatives are complex financial contracts whose value is derived from an underlying crypto asset, index, or rate, encompassing futures, options, swaps, and perpetual contracts traded on digital asset exchanges.
Maintenance Margin
Collateral ⎊ Within cryptocurrency derivatives and options trading, the maintenance margin represents the minimum equity a trader must maintain in their account to cover potential losses.
Margin Requirements
Definition ⎊ Margin requirements refer to the minimum amount of capital an investor must deposit and maintain with a broker or exchange to open and sustain a leveraged position in derivatives trading.
Crypto Risk Management
Volatility ⎊ Crypto risk management, within the context of cryptocurrency, options, and derivatives, centers on quantifying and mitigating exposure to price fluctuations ⎊ a core characteristic of these asset classes.
Maintenance Margin Definition
Collateral ⎊ Maintenance margin represents the minimum equity a trader must retain in a margin account relative to the position’s value, serving as a crucial risk management parameter within cryptocurrency derivatives and options trading.
Keeping Positions Open
Position ⎊ Maintaining open positions in cryptocurrency derivatives, particularly options, represents a strategic commitment to a directional view, often predicated on anticipated market movements or volatility regimes.