Margin is the money you put up to open and hold a position. Leverage is how big the position is compared with that money. If you post $1,000 and control a $5,000 position, your margin is $1,000 and your leverage is 5x. The two numbers always go together. Leverage equals position size divided by margin, so the margin requirement as a share of the position is one divided by the leverage. A 20% requirement means 5x, and a 5% requirement means 20x.
The one formula that links them
- Leverage = position size ÷ margin posted
- Margin requirement (%) = 1 ÷ leverage
- Price move that wipes out the margin ≈ 1 ÷ leverage, before fees, funding and any maintenance buffer
At 5x, a 20% move against you uses up all of the posted margin. At 20x it takes 5%. At 100x it takes 1%. A high leverage number tells you mostly how small a move it takes to wipe out your margin.
A worked example: $1,000 behind a $5,000 position
Profit and loss are calculated on the full position, not on the deposit.
| Price move | Change on $5,000 position | Effect on $1,000 margin |
|---|---|---|
| +10% | +$500 | +50% |
| −10% | −$500 | −50% |
| −20% | −$1,000 | −100% (margin gone) |
These figures leave out trading fees, borrowing interest and perpetual funding payments. All of these reduce the result. In practice the position is closed before the full 20% move, because venues require you to keep a maintenance level above zero.
Initial margin, maintenance margin and the margin call
Initial margin is what you need to open the position. Maintenance margin is the lower amount of equity you must keep to hold it open. CME Group describes maintenance as the equity required to keep an open position. If your equity falls below maintenance, you get a margin call: add collateral or reduce the position.
Regulated securities markets in the US show how this works in practice. FINRA says that under the Federal Reserve's Regulation T, firms can initially lend up to 50% of the purchase price of eligible stock. That caps a new stock position at about 2x. After the purchase, FINRA rules require equity of at least 25% of the market value of the securities, and firms can set higher "house" levels such as 30% or 40%. FINRA also requires at least $2,000 in the account before margin trading.
FINRA adds that firms "don't have to issue a margin call before selling securities." They may sell assets without asking which ones you want sold. A margin call is something a firm may give you, not something it must give.
How far does a move go on your margin?
Enter the margin you post, your leverage and a price move to see the profit or loss on the full position.
| Margin you post | Leverage (position size ÷ margin) | Price move (negative = against you) | Profit or loss on the full position |
|---|---|---|---|
| 1,000 $ | 5 x | -10 % | -500 $ |
| 1,000 $ | 5 x | -20 % | -1,000 $ |
| 1,000 $ | 20 x | -5 % | -1,000 $ |
| 1,000 $ | 5 x | 10 % | 500 $ |
- Margin, leverage and price move are your own inputs, not figures from any source.
- A loss equal to your margin means the margin is gone: at 5x that takes a 20% move, at 20x a 5% move, at 100x a 1% move.
- In practice the position is closed before the loss reaches your full margin, because venues require a maintenance level above zero.
This is arithmetic on your inputs only: it leaves out trading fees, borrowing interest, funding payments and the maintenance level, so a real position is closed before the loss shown reaches your full margin.
Futures margin is a performance bond, not a down payment
On futures, the word "margin" means something different from borrowing to buy stock. CME Group says futures margin is not a down payment and you do not own the underlying asset. It is a good-faith deposit, or performance bond, that both buyers and sellers post to cover the daily obligations of the position. CME's education material puts futures margin at typically 3–12% of a contract's notional value, compared with up to 50% for securities bought on margin. By the formula above, that range works out to roughly 8x to 33x. CME Clearing changes the rates with market conditions and raises them when volatility rises.
Perpetual futures and funding
Most crypto leverage today runs through perpetual futures. In "Fundamentals of Perpetual Futures," Songrun He, Asaf Manela, Omri Ross and Victor von Wachter describe them as the most popular crypto derivatives. They give leveraged exposure without rollovers or ownership of the asset. Perpetuals have no maturity date, so their price is not guaranteed to converge to spot. To close the gap, long holders periodically pay short holders a funding rate in proportion to the difference between the two prices. If you hold a leveraged perpetual, funding is an ongoing cost or income that changes your margin balance even when the price stays flat.
What regulators say about leverage on crypto
- CFTC (US): In its advisory on virtual currency trading risks, the CFTC says leverage "amplifies the underlying risk." When the market moves against them, traders may be forced to refill margin accounts or close positions, and they "may lose more than their initial investments."
- ESMA (EU): ESMA's measures on contracts for difference (CFDs) for retail clients cap leverage on cryptocurrency CFDs at 2:1. For comparison, the caps are 30:1 on major currency pairs and 5:1 on individual equities. The measures also require providers to close positions when margin falls to 50% of the minimum required, and they add negative balance protection per account.
Those caps show how regulators see crypto: as the asset class that needs the lowest leverage for retail traders.
How to read a leverage number
- Work out the margin requirement: 1 ÷ leverage.
- Compare it with how far the asset can move in a day. If a normal daily move is bigger than the margin requirement, one ordinary day can close the position.
- Find the maintenance level. Liquidation comes before your margin reaches zero.
- Add costs: fees, borrowing interest or funding. All of them come out of the same margin.
Limitations: the regulatory figures here describe US securities and EU retail CFD rules, not every venue or jurisdiction, and they are educational, not trading advice.
