Types of Margin

Understanding margin is essential for managing risk and maximizing capital efficiency when trading with leverage. On VDEX, margin refers to the collateral you provide to open and maintain leveraged positions.

This section breaks down the two core types of margin, Initial Margin (IM) and Maintenance Margin (MM) as well as the two modes of applying it: Cross Margin and Isolated Margin.

Whether you're optimizing for flexibility or control, knowing how each works will help you trade smarter and stay protected from unnecessary liquidations.

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:

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

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• Cannot Be Withdrawn (Cross Margin): For cross-margin positions, this margin remains locked and cannot be withdrawn.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

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

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.