What Is Margin? Definition & Example

Margin is the money you put up to back a leveraged position. It is not a fee and not a payment — it stays yours, sitting as collateral, and it is what the exchange draws on if the trade moves against you. When it runs out, the position is liquidated.

Two thresholds matter. Initial margin is what you need to open the position: notional divided by leverage. Maintenance margin is the smaller amount you must keep to hold it open. The gap between them is your room to be wrong, and liquidation is the price at which equity falls to the maintenance level.

Exchanges offer two modes, and the choice matters more than most people realise. Isolated margin ring-fences collateral to a single position — the most you can lose is what you allocated, and a disaster on one trade cannot touch the others. Cross margin pools your entire balance across all positions, which uses capital more efficiently and delays liquidation, but links every position to every other one. A single bad trade in cross mode can cascade through an otherwise healthy book.

Adding margin to an existing isolated position is the only way to improve your liquidation distance without reducing position size. It lowers effective leverage on that trade while leaving the size untouched, which is a genuinely useful tool when a thesis is intact but the position is uncomfortably close to being closed for you.

Watch for margin erosion on longer holds. Funding payments come out of your collateral continuously, so a position that opened with a comfortable buffer can drift into danger without price ever moving against you.