What Is the Formula for Calculating the Required Initial Margin for a Given Leverage?
The required initial margin is calculated by dividing the total notional value of the position by the chosen leverage level. For example, if a trader wants a $10,000 position with 10x leverage, the required initial margin is $10,000 / 10 = $1,000.
This calculation determines the minimum collateral needed to open the trade.
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.
Notional Value
Scale ⎊ quantifies the total value of the underlying assets represented by outstanding derivative contracts, irrespective of the actual capital exchanged.