Initial Margin
In simple terms
The amount of money you need to put down to borrow funds for trading. It's like a security deposit—the exchange holds it to protect themselves in case your trade loses money.
Definition
Minimum collateral required to open a leveraged trade.
In depth
Initial margin is the minimum collateral amount a trader must deposit to open a leveraged position on a margin account. When you post initial margin, the exchange or broker uses it as security against potential losses and liquidation risk. The amount is typically calculated as a percentage of the total position size (e.g., 10% initial margin means you can control 10x the collateral you deposit). If your account equity falls below the maintenance margin threshold due to adverse price movements, the position may be liquidated. This mechanism protects the platform from counterparty risk while enabling traders to access leverage.
How does Initial Margin work?
When a trader submits an order to open a leveraged position, the exchange calculates the required initial margin as the position's notional value multiplied by an initial margin rate. That rate is the inverse of the maximum leverage allowed, so a 10% rate corresponds to 10x. If the account's free collateral is below the requirement, the order is rejected. If it is accepted, the amount is reserved against that position and cannot back other trades. Rates are usually tiered, rising as position size grows, and platforms raise them during volatile conditions.
An example
An exchange sets a 10% initial margin rate on a contract, equivalent to a maximum of 10x leverage, in illustrative figures. Opening a $20,000 notional position therefore requires at least $2,000 in free collateral, which is then reserved. If the trader wants $40,000 notional and the tier above $25,000 carries a 20% rate, the requirement becomes $8,000 rather than $4,000.
Figures are illustrative only.
What beginners get wrong
- Meeting the initial margin only opens a position; a separate and lower maintenance requirement decides when that position gets force-closed.
- Tiered schedules mean doubling position size can more than double the collateral required, so figures quoted at small size mislead.
- Reserved initial margin is no longer available for other trades, which surprises people who still read their balance as free.
- Exchanges can raise initial margin rates during volatile periods, blocking new positions or forcing existing ones to be reduced.
Related terms
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Educational only — not financial advice.