Crypto glossary
Initial and maintenance margin
Initial margin is the collateral needed to open a leveraged position; maintenance margin is the minimum that must remain to avoid being liquidated.
Initial margin is the deposit required to open a position and is set by the leverage chosen: a 10,000 dollar position at 10x needs 1,000 dollars. Maintenance margin is a lower threshold, often between 0.4 and 1 percent of position size on major perpetuals, below which the exchange will liquidate. The gap between the two is the buffer that absorbs losses.
Exchanges publish tiered margin tables: the larger the position, the higher the maintenance requirement and the lower the maximum leverage allowed, because closing a huge position moves the market more. Traders monitor their margin ratio, which compares current equity with the maintenance requirement, and top up collateral when it gets too close.
Margin is usually posted in stablecoins or the asset itself. With coin-margined contracts the collateral loses value in the same move that hurts a long, so the margin ratio deteriorates twice as fast. Requirements can change during extreme volatility, and unrealized losses, funding and fees all eat into the buffer.
Example
A trader opens a 50,000 dollar BTC long with 5,000 dollars of initial margin; with a 0.5 percent maintenance margin, liquidation comes once losses leave less than about 250 dollars of equity in the position.