What Is the Relationship between Leverage and Margin Requirement?
Leverage and margin requirement have an inverse relationship. Higher leverage means a smaller initial margin is required to open a position of a certain size.
For example, 10x leverage requires 10% initial margin, while 100x leverage requires only 1% initial margin. This smaller margin for high leverage 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.
Margin Requirement
Collateralization Standard ⎊ Margin Requirement is the minimum amount of collateral, expressed as a percentage of the notional value, that a trader must deposit to open or maintain a leveraged derivatives position, ensuring the exchange has a buffer against adverse price movements.
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.
High Leverage
Amplification ⎊ High leverage, within cryptocurrency and derivatives markets, fundamentally alters risk-reward profiles by enabling a smaller capital outlay to control a larger notional exposure.
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.
100x Leverage
Amplification ⎊ ⎊ 100x leverage in cryptocurrency derivatives represents a proportional increase in exposure relative to an investor’s initial capital, enabling a trader to control a position value 100 times greater than their margin deposit.