Margin is the collateral that supports a perp position. It is what lets you open leveraged exposure, and it is also what protects the venue if the market moves against you.
When you hear traders say they are "trading on margin," they usually mean they are using collateral to control a larger position than they could with spot alone.
Initial margin
Initial margin is the amount of collateral required to open a position. Higher leverage means lower initial margin relative to position size. For example, a 10x position needs roughly 10% of the notional size as starting collateral, before venue-specific rules and fees.
Maintenance margin
Maintenance margin is the minimum equity required to keep the position open. If losses push your account equity below the maintenance requirement, the position can be liquidated.
This is why liquidation can happen before your collateral reaches exactly zero. The system needs a buffer to close the position while there is still enough value to cover the risk.
Account equity
Your margin balance is not static. It changes with unrealized profit and loss, funding payments, and fees. A profitable position increases account equity. A losing position reduces it.
If you add collateral, you usually move the liquidation price farther away. If you withdraw collateral or add more exposure, you can move liquidation closer.
Margin is not a stop-loss
A liquidation price is the exchange's emergency line, not your trade plan. Waiting for liquidation means you let the venue decide where your trade ends. A better approach is to define your invalidation level before opening the position and size the trade so you can exit before liquidation.
A cleaner margin habit
- Check your liquidation price before opening.
- Keep extra buffer for volatile markets.
- Avoid using all available margin on one idea.
- Know whether your position uses isolated or cross margin.
Risk note: Margin trading can lead to rapid losses and liquidation. This article is educational content, not financial advice.