What is initial margin? How it is set and what it locks up
Initial margin is the collateral a venue requires, and locks from your available balance, before it will open a leveraged position — on crypto derivatives venues it is the position’s notional value divided by the leverage you selected.
This page is for anyone who has opened a futures or perpetual position and wants to know what that locked number actually does. By the end you will be able to compute it, see what it gates, and tell the difference between the margin you posted and the money you have at risk — which are routinely confused, and are not the same thing.
Why this matters now
Initial margin is the first number the order ticket shows you, and it quietly does three jobs at once:
- It gates new orders. A venue checks whether your available balance covers the initial margin before accepting an order. Too little and the order is rejected, however good the idea.
- It sets how far liquidation is. Under isolated margin, the posted amount is the only thing defending the position, so it fixes the distance to the liquidation price.
- It decides how much of your balance is free for anything else.
What it does not do is set your loss at the stop. That is the confusion worth clearing up, and it comes after the mechanics.
How it actually works
- Notional is computed. For a linear contract,
quantity × price. A long of 0.5 units at 60,000 is 30,000 of notional. - The leverage setting converts it to a rate.
initial margin rate = 1 ÷ leverage. At 10× that is 10%. - Initial margin is the product.
initial margin = notional ÷ leverage. - It is reserved from available balance. It stays attached to the position (isolated) or counted against the account’s shared collateral (cross) until the position closes.
Worked through on an illustrative 10,000 balance, same 30,000 position:
| Leverage setting | Initial margin | Balance still free |
|---|---|---|
| 5× | 6,000 | 4,000 |
| 10× | 3,000 | 7,000 |
| 20× | 1,500 | 8,500 |
Same position, same exposure, same profit or loss per point of price movement. Only the amount locked up changes.
Open orders count too. A resting limit buy of 0.2 units at 58,000 at 10×
reserves 0.2 × 58,000 ÷ 10 = 1,160 before it fills. A few forgotten limit
orders are a common reason a new order is rejected for insufficient margin when
the balance looks ample. Whether a venue also reserves an amount for fees, and
whether unrealised profit counts toward available balance, are venue rules worth
checking before you rely on the arithmetic above.
The rate has a floor, and it rises with size. A venue’s maximum leverage for
a position is 1 ÷ minimum initial margin rate, and venues publish it in tiers:
larger positions get a higher minimum rate and therefore a lower maximum
leverage. The companion requirement,
maintenance margin, is tiered the same
way.
On regulated exchange-traded futures the idea is the same but the number is set differently: the exchange publishes an initial margin per contract derived from its own risk model, and a broker may require more. It is a performance bond, not a down payment on the asset.
Initial margin vs the money you have at risk
This is the distinction people actually get wrong.
Initial margin is what you post. Risk is what you lose if you are wrong.
With a stop 2% below the 60,000 entry, the loss at the stop is
0.5 × 1,200 = 600 — whether you posted 6,000 at 5× or 1,500 at 20×. Leverage
appears nowhere in that product, which is the argument made at length in
leverage is not risk.
So when is initial margin the loss? Only in the failure case:
- Isolated margin, no stop, or a stop that never fires. The position runs to liquidation and you lose, approximately, the posted margin. Here, at 10×, that is about 3,000 — five times the 600 you meant to risk.
- Cross margin. The posted figure is not a ceiling at all. A losing position draws on the whole account’s collateral, so the loss can exceed its initial margin — see isolated vs cross margin.
The practical reading: initial margin is a worst case under isolated margin, and not even that under cross. Your planned loss comes from the stop and the position size, via the position size calculator.
Initial vs maintenance margin
Two different numbers, set by different parties:
| Initial margin | Maintenance margin | |
|---|---|---|
| What it is | Collateral required to open | Minimum equity required to stay open |
| Set by | Your leverage setting (within the venue’s cap) | The venue’s tier schedule |
| When it bites | At order placement | While the position is open |
| Typical size | Larger | Smaller |
The gap between the two rates is your room to be wrong before liquidation. With
an illustrative 0.5% maintenance rate, 10× leaves roughly 10% − 0.5% = 9.5%.
The liquidation price calculator turns
that into a price.
Adding margin to an isolated position
Initial margin is fixed at entry, but under isolated margin a venue will usually let you add to it afterwards — check yours. The arithmetic is worth seeing, because it changes one thing and leaves another alone.
Same long, 0.5 units at 60,000, illustrative 0.5% maintenance rate, fees and
funding ignored. Liquidation under isolated margin is where
margin + quantity × (price − entry) = maintenance rate × quantity × price:
| Margin posted | Effective leverage | Liquidation price | Distance from entry |
|---|---|---|---|
| 3,000 | 10× | 54,271.36 | 9.55% |
| 4,000 | 7.5× | 52,261.31 | 12.90% |
Adding 1,000 moved liquidation about 2,000 further away and cut effective leverage from 10× to 7.5×. It did not change the profit or loss per point: still 0.5 per unit of price.
That is useful when it is a planned buffer. It is dangerous when it is a reaction — topping up margin on a losing position is the isolated-margin version of widening a stop. The loss you can now take is larger than the one you sized for, and it arrived without a decision to size up.
Where the boundary should sit
Decide the stop and the position size first; let initial margin fall out of the leverage setting. Then check two things:
- Does liquidation sit beyond the stop, with room? If not, the stop is
decorative. The ceiling is roughly
1 ÷ (stop distance + maintenance rate), derived in max leverage for your stop distance, and tabulated by the leverage and stop-loss table. - Is the freed balance going to stay free? Low initial margin makes room for more positions. Several correlated positions opened because the margin was available are one larger position.
Fees and funding are both deducted from margin, so the liquidation distance at entry is a best case that shrinks while you hold.
FAQ
How is initial margin calculated?
On crypto futures and perpetuals it is the position’s notional value divided by the leverage setting: a 30,000 position at 10× requires 3,000. The venue caps leverage by position size, so large positions have a higher minimum rate. On regulated exchange-traded futures, the exchange sets a margin per contract from its own risk model instead.
Is initial margin the most I can lose?
Only under isolated margin, and only if the position runs to liquidation. Under cross margin a losing position can draw on the whole account, so the loss can exceed the initial margin. Your intended loss should come from the stop distance and position size, which are usually a small fraction of the margin posted.
What is the difference between initial margin and maintenance margin?
Initial margin is the collateral needed to open a position, set by your leverage. Maintenance margin is the smaller minimum equity the position must keep to stay open, set by the venue’s tier schedule. The gap between the two rates is roughly how far price can move against you before liquidation.
Does adding margin to an isolated position reduce my risk?
It moves liquidation further away and lowers effective leverage, but it does not change the profit or loss per unit of price movement. It increases the amount you can lose on that position. Done as a planned buffer it is reasonable; done to rescue a losing position, it is a larger bet made without re-sizing.