Margin

Understanding Initial Margin vs. Maintenance Margin

Initial Margin (IM):

Initial margin Is the amount of collateral a trader must provide to open a leveraged position. It acts as a security deposit, ensuring the trader has sufficient funds to cover potential losses.

Formula:

$Initial Margin= (Quantity of asset × Entry Price) / Leverage$

Example:

Initial Margin

Key Characteristics:

• Required at Position Opening: The trader must deposit this margin before opening a trade.

• Cannot Be Withdrawn (Cross Margin): For cross-margin positions, this margin remains locked and cannot be withdrawn.

• Adjustable for Isolated Margin: Traders using isolated margin can add or remove margin after opening a position.

Maintenance Margin (MM)

• Definition: The maintenance margin is the minimum amount of collateral required to keep a leveraged position open. If the account balance falls below this threshold, the position is at risk of liquidation.

• Formula:

$Quantity of Asset × Entry Price × Maintenance Margin Rate$

Example:

Key Characteristics:

• Lower Than Initial Margin: Typically, maintenance margin is set as a fraction of the initial margin.

• Prevents Liquidation: If a trader’s account value (including unrealized PnL) falls below this margin, their position may be liquidated.

• Set at Half of Initial Margin at Max Leverage: On VDEX, the maintenance margin is set to half of the initial margin at maximum leverage.

Cross Margin

Think of cross margin like a shared bank account for all your trades.

• All your positions share the same pool of money (your total balance).

• If one trade is losing money, it can use funds from your other trades to stay open.

• This helps reduce liquidation risk, but if things go really bad, you can lose your entire balance.

• Best for: Experienced traders who want to maximize capital efficiency.

Example:

• You have $1,000 in your account.

• You open three trades with $100 margin each (so $300 total used).

• One trade is losing, but because you still have money in your account, it stays open

Isolated Margin

Now, imagine isolated margin as separate piggy banks for each trade.

• Every trade gets its own, dedicated chunk of margin.

• If one trade goes bad, it only loses the money assigned to it—your other trades are safe.

• You can add or remove money from an isolated trade after it’s open.

• Best for: Beginners or those who want to limit risk per trade.

Example:

• You have $1,000 in your account.

• You open a trade with $100 margin in isolated mode.

• If that trade gets liquidated, you only lose $100, and your other funds stay untouched.

Which One Should You Use?

• Cross Margin = More flexible but riskier (you could lose everything).

• Isolated Margin = More controlled, but limits how much you can use for each trade.