What Role Does Margin Play in Trading Perpetual Futures?
Margin is the collateral required to open and maintain a leveraged position in a perpetual futures contract. It acts as a performance bond to cover potential losses.
By using margin, traders can control a contract value much larger than their deposited capital. The margin system enables leverage, but also introduces the risk of liquidation if the market moves unfavorably and the margin balance drops too low.
Glossar
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.
Risk of Liquidation
Threshold ⎊ The risk of liquidation is mathematically defined by the liquidation threshold, which is the specific price point at which a leveraged position's equity falls below the required maintenance margin level.
Perpetual Futures
Contract ⎊ Perpetual futures represent a type of financial derivative contract, specifically within the cryptocurrency and options trading space, that replicates the payoff of a traditional futures contract without a fixed expiration date.
Margin Balance
Balance ⎊ The margin balance represents the net value of a trading account, reflecting the difference between the total collateral posted and the current realized and unrealized profit or loss on open positions.
Contract Value
Definition ⎊ Contract Value represents the total notional worth of a derivative agreement, calculated by multiplying the contract's size by the current price of the underlying asset.
Performance Bond
Collateral ⎊ A performance bond within cryptocurrency derivatives functions as a mechanism to mitigate counterparty credit risk, representing a quantified commitment ensuring contractual obligations are met, particularly in perpetual swaps or futures contracts.