Margin
Margin in Trading
Margin is the amount of money you deposit to your account as collateral to open and maintain a leveraged position. It's essentially your trade collateral that the exchange temporarily locks.
Margin trading allows opening positions larger than your account balance. For example, with 5× leverage, you can buy $5,000 worth of cryptocurrency with only $1,000.
Types of Margin
Initial margin is the minimum amount required to open a position. Calculated as a percentage of the full trade value.
For example, with 10× leverage, initial margin is 10%. To buy $10,000 worth of BTC, you need to deposit $1,000.
Maintenance margin is the minimum level of funds required to keep positions open. Usually lower than initial margin.
If your balance drops below maintenance margin due to losses, the exchange can forcibly close your positions.
Free margin refers to funds not locked in positions. You can use them for new trades or withdrawal.
How Margin Works
Example of Opening a Position
Initial conditions:
Account balance: $2,000
BTC price: $50,000
You want to buy: 0.2 BTC ($10,000)
Leverage: 5×
What happens:
Exchange locks $2,000 as margin (20% of $10,000)
Exchange provides $8,000 as credit
You buy 0.2 BTC for the full amount of $10,000
Free margin = $0 (all funds are locked)
Scenario 1: BTC Price Rises 10%
New BTC price: $55,000
Position value: 0.2 BTC × $55,000 = $11,000
Your profit: +$1,000
Account balance: $3,000
Locked margin: $2,000
Free margin: $1,000
Margin level: 150% ✅
You can open a new position with $1,000 or withdraw the profit.
Scenario 2: BTC Price Falls 10%
New BTC price: $45,000
Position value: 0.2 BTC × $45,000 = $9,000
Your loss: −$1,000
Account balance: $1,000
Locked margin: $2,000 (required)
Free margin: −$1,000 ⚠️
Margin level: 50% ❌
Balance is below required margin — margin call possible.
Margin Level
Margin level shows how safe your position is:
Margin level = (Account balance / Locked margin) × 100%
Above 200% — safe zone. Sufficient funds reserve.
100–200% — risk zone. Margin is sufficient, but reserve is small.
Below 100% — critical zone. Margin call possible.
Calculation Example
You have an open ETH position:
Account balance: $3,000
Locked margin: $1,500
Margin level = (3,000 / 1,500) × 100% = 200%
This is a safe level. The price can drop 50% (loss of $750), and the margin level will remain above 100%.
Margin Call
A margin call occurs when the margin level drops below the minimum acceptable level (usually 100–120%).
What happens:
Exchange sends a notification about the need to fund the account
You can deposit additional funds
Or close part of your positions to free up margin
If no action is taken, the exchange will forcibly close positions. This is called stop-out or liquidation.
Margin Call Example
Situation:
Account balance: $1,200
Locked margin: $1,000
Margin level: 120%
Price moves against you:
Loss: −$400
New balance: $800
Margin level: 80% ⚠️
Result:
The exchange automatically closes the position because the level dropped below critical. You lose $400, and the remaining $800 is returned to your account.
Two Types of Margin Trading
Isolated Margin
Risk is limited only to the funds allocated for a specific position. If the position is liquidated, you will lose only those funds.
Example:
You allocate $500 for a BTC position with 10× leverage. Even if you have $5,000 in your account, you will only lose $500 upon liquidation.
Cross Margin
All funds in the account are used as collateral for all positions. This reduces the risk of liquidation, but in case of failure, you can lose your entire balance.
Example:
You have $5,000 in your account and three open positions. If one is losing, the remaining funds help avoid liquidation.
⚠️ Risks of Margin Trading
Amplified losses
10× leverage amplifies not only profits but also losses by 10 times. A 10% price drop will result in a 100% loss of your deposit.
Forced closure
The exchange can close positions at the worst possible moment when the margin level is critically low.
Leverage fees
Exchanges charge for using borrowed funds. The longer you hold a position, the more you pay.
Emotional pressure
Leveraged trading creates stress due to high risks. This can lead to impulsive decisions.
💡 Recommendations
Use no more than 20–30% of available margin for one position
Monitor margin level — don't let it drop below 150%
Always set stop-loss to limit losses
Beginners should trade without leverage or with minimal 2× leverage
For first trades, use isolated margin
Calculate maximum loss before margin call before opening a position
Remember: the higher the leverage, the higher the risk of losing all capital
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