What is initial margin?

The collateral you must post to open a leveraged position, expressed as a fraction of the position's notional value.

Initial margin sets your maximum leverage: posting a tenth of notional is ten times leverage. It is always higher than maintenance margin, and the gap between the two is your room to be wrong before the liquidation engine intervenes.

Opening at maximum leverage collapses that gap to almost nothing, which is why a small adverse move can end a maximum-leverage position within minutes. Exchanges publish both requirements in the same margin tier table, and reading that table before sizing a position is the whole of the discipline.

How it works

The requirement is stated as a percentage of notional, and the leverage figure exchanges advertise is simply its reciprocal. A 5 percent initial margin requirement is 20 times leverage. A 50 percent requirement is 2 times.

Requirements are tiered by position size. The first tier, covering small positions, carries the lowest requirement and the highest available leverage. As notional grows the requirement steps up, because a large position is harder to close without moving the market. A position that grows across a tier boundary has its requirement recalculated on the whole position, not just the excess, which can trigger a margin call on a position that was comfortable a moment earlier.

Margin mode changes what backs the requirement. Under isolated margin, only the collateral you assigned to that position counts. Under cross margin, your whole account balance supports it, which pushes the liquidation price further away and puts the rest of the account at risk.

The distance to trouble is arithmetic you can do before opening. The percentage adverse move that takes you from initial to maintenance margin is approximately the initial requirement minus the maintenance requirement, divided by the initial requirement, times the leverage. Fees and funding erode that distance further.

Example

Illustrative arithmetic. You open a $10,000 notional long with 10 percent initial margin, so you post $1,000 and run 10 times leverage. Suppose maintenance margin for that tier is 5 percent, which is $500.

Your equity starts at $1,000. A 5 percent fall in the underlying costs you $500, leaving $500 of equity against a $500 requirement, and you are at the liquidation threshold. So a 5 percent move against you ends the position.

Now open the same $10,000 at 25 times leverage, posting $400. Maintenance is still $500 at that notional in this illustration, meaning the position cannot be opened at all in this tier. Where a venue does allow it, the equivalent buffer is well under 2 percent. Same market, same notional, entirely different survival distance.

Why it matters when you buy

Leveraged products are restricted or prohibited for retail customers in a number of jurisdictions, so the first question is whether they are available to you at all. The jurisdiction pages show what is permitted where you live, and the exchange pages show which venues offer what. For a spot purchase none of this applies, and the fee comparison is the relevant cost view.

Related terms

• maintenance margin: the level that triggers liquidation
• leverage: the multiple initial margin implies
• margin: the collateral backing a borrowed position
• isolated margin: ring-fencing collateral to one position
• cross margin: the whole balance backing every position
• liquidation: the forced close when equity runs out

Questions

Why did my requirement increase after I added to a position?

Margin requirements are tiered by size, and crossing into a higher tier recalculates the requirement across the full position rather than only the added amount.

Is initial margin the most I can lose?

Under isolated margin, generally yes, since only the assigned collateral is at risk. Under cross margin the whole account backs the position, and in extreme moves some venues can produce a negative balance unless they offer protection against it.

Does higher leverage cost more?

The requirement itself is not a fee, but funding payments and trading fees scale with notional rather than with your posted collateral, so a highly leveraged position pays fees on a much larger base than you put up.