What Is the Relationship between Initial Margin and Maximum Leverage?
Initial margin and maximum leverage are inversely related. The maximum leverage offered by an exchange is mathematically derived from the initial margin requirement.
For example, a 1% initial margin requirement allows for 100x leverage (1/0.01 = 100). Lower initial margin means higher potential leverage, and vice-versa.
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.
Maximum Leverage
Amplification ⎊ Maximum leverage, within cryptocurrency and derivatives markets, represents the utilization of borrowed capital to increase the potential return of an investment, fundamentally altering risk-exposure profiles.
Initial Margin Requirement
Definition ⎊ Initial margin requirement specifies the minimum amount of capital a trader must deposit into a margin account to open a new leveraged position in a derivative contract.
Maximum Leverage Offered
Limit ⎊ The maximum leverage offered represents the upper limit set by a derivatives exchange on the multiplier a trader can apply to their position size.