Margin isn't your loss limit. Understand liquidation.
Collateral supports a leveraged position, but it cannot promise that the position will survive. Learn how a falling market affects margin equity and why exchange liquidation is more complex than a simple leverage percentage.
Updated 14 Nov 2026 · Original educational material · Hypothetical examples, not live market data
First, what is margin?
Notional exposure is the full position value. Initial margin is the collateral required to open a leveraged position. Consider a hypothetical long of 10 units at $100: its notional is $1,000. At an illustrative 5× leverage ratio, its starting margin might be near $200 before commissions and venue-specific requirements.
The price still moves by the same dollar amount. A fall from $100 to $95 causes a $50 position loss. That is 5% of notional but 25% of the original $200 margin. Leverage magnifies P&L relative to collateral, not the underlying asset's price movement.
What is maintenance margin?
Maintenance margin is a continuing requirement. If the eligible account equity supporting a position becomes insufficient relative to the venue's requirements, a liquidation engine may reduce or close the position.
The threshold can depend on notional and maintenance tiers, collateral, account mode, costs, funding and other positions. Many derivatives venues use a mark price instead of the last traded price to assess liquidation. A candle chart and a leverage number therefore cannot reliably tell you where forced closure will occur.
Swipe sideways to see the full collateral illustration →
A 5% move in price; a 25% loss relative to margin.
On the same trade, a $10 price decline would generate a $100 position loss. Whether the exchange would permit the position to remain open at that price is a separate question that requires its actual maintenance and liquidation rules.
Cross margin vs isolated margin.
In isolated margin, collateral is assigned to the position or isolated balance. In cross margin, an eligible pool of account collateral may support several positions. Cross can give a position more shared equity to draw from, but may also put more of the account at risk.
A simultaneous long and short is not automatically risk-free. Margin offset rules, funding, basis changes and order execution can all affect the account.
Stops and collateral top-ups.
A stop order does not guarantee its execution price. Markets can gap, liquidity can disappear, and the stop and liquidation references may differ. Adding collateral may change the margin buffer but does not change the position's underlying exposure or direction.
Reducing an open position may reduce notional risk, but exact liquidation consequences depend on how the venue recalculates margin. Avoid treating a displayed liquidation price as immutable.
Three misconceptions.
“5× means liquidation at −20%.”
This skips maintenance tiers, fees, funding, price references and account collateral.
“My stop always goes first.”
Stop execution and liquidation engines may use different triggers. Neither a fill nor its price is guaranteed.
“More collateral repairs the trade.”
Top-ups change margin headroom, not whether the trade makes money.
Frequently asked questions.
Can I calculate liquidation using leverage alone?
No. You need maintenance specifications, collateral, margin mode, current position details and venue price rules.
Is initial margin the maximum possible loss?
No. It is an opening collateral requirement, not a universal loss cap.
Is unleveraged spot subject to this type of liquidation?
Spot purchased outright without borrowing generally is not. Margined or borrowed spot has different obligations.
Does cross margin always protect the account?
No. Shared collateral can help sustain a position while also increasing account-wide exposure.
Does Market History Lab calculate real liquidation prices?
No. Our tools estimate losses for manually specified positions and stops, not a venue's full liquidation model.