What Is Margin Trading in Crypto? Borrowing, Risk and Liquidation

Margin trading is trading with borrowed funds or leverage, using your own capital as collateral to open a position larger than your balance. It multiplies both profits and losses. If losses reduce your collateral below a required minimum, the exchange closes the position through liquidation.

Key takeaways

• Margin is the collateral you post; the rest of the position is borrowed or leveraged exposure.
• Spot margin borrows real assets and charges interest; futures margin backs a contract and perps charge or pay funding.
• Initial margin is what you need to open; maintenance margin is what you need to stay open.
• A 10% price move at 5x leverage is a 50% change in your equity.
• Choose between isolated and cross margin to control how much of your account is at risk.
• Borrowing costs and fees are charged on the full position size, not just your margin.

How margin trading works

You deposit collateral, the exchange lets you control a larger position, and the difference is borrowed or leveraged. Leverage is the ratio of position size to your margin:

Leverage = position size ÷ your margin

With $2,000 of margin and a $10,000 position, leverage is 5x.

Your equity is what the position would be worth to you if closed now:

Equity = position value − borrowed amount (for spot margin), or margin + unrealized PnL (for futures).

Spot margin vs futures margin

Crypto exchanges offer two main kinds of margin trading.

	Spot margin	Futures and perpetuals
What you hold	Real coins, bought with borrowed funds	A contract that tracks the price
What is borrowed	Stablecoins (to go long) or coins (to go short)	Nothing is borrowed; margin backs the contract
Ongoing cost	Interest on the loan, often charged hourly	Funding rate on perps, paid or received
Typical max leverage	Usually lower	Usually higher
Shorting	Borrow the coin and sell it	Open a short contract directly

Perpetual futures are the most common way to trade on margin in crypto, because shorting is simple and no loan needs to be managed.

Worked example: a 5x spot margin long

Assume you have $2,000 and borrow $8,000 in stablecoins to buy $10,000 of BTC at $50,000, so you hold 0.2 BTC. Assume a maintenance margin requirement of 10% of position value and an annual borrow rate of 10% (both illustrative).

If BTC rises 10% to $55,000:

• Position value: 0.2 × $55,000 = $11,000
• Equity: $11,000 − $8,000 = $3,000
• Gain: +$1,000, or +50% on your $2,000

If BTC falls 10% to $45,000:

• Position value: 0.2 × $45,000 = $9,000
• Equity: $9,000 − $8,000 = $1,000
• Loss: −$1,000, or −50%

Where liquidation happens: the position is liquidated when equity ÷ position value falls to 10%.

• (V − $8,000) ÷ V = 0.10
• 0.9 × V = $8,000, so V = $8,888.89
• That is a BTC price of $8,888.89 ÷ 0.2 = $44,444, a drop of about 11.1%

Borrow cost: $8,000 × 10% ÷ 365 ≈ $2.19 per day, charged whether the trade wins or loses. Hold for 30 days and that is about $66, or 3.3% of your own capital.

Use the margin calculator or liquidation price calculator to run your own numbers.

Initial margin, maintenance margin and margin calls

• Initial margin: the collateral required to open a position. At 10x maximum leverage, initial margin is 10% of position size.
• Maintenance margin: the lower threshold required to keep it open. It is usually a small percentage of position value and often rises for larger positions.
• Margin ratio or margin level: how close you are to liquidation. Exchanges display this differently, so read the definition on your venue.
• Margin call: a warning that your equity is near the maintenance level. In crypto, liquidation is usually automatic, so the warning may come only moments before.

On derivatives exchanges, liquidation is usually triggered by the mark price, not the last trade price. See mark price vs index price.

Isolated vs cross margin

Most exchanges let you choose how collateral is shared:

• Isolated margin: each position has its own margin. Losing it does not touch the rest of your account.
• Cross margin: your whole account balance backs all positions. This delays liquidation but puts more at risk.

The full comparison is in isolated vs cross margin.

Margin in arbitrage and hedged strategies

Arbitrage traders use margin differently from directional traders. In a cash-and-carry trade, the trader buys spot and shorts a perpetual of the same size. The combined position is roughly delta neutral, but the short leg still has its own margin and liquidation price. If the price rallies hard, the short can be liquidated even though the spot leg gained the same amount.

This is why hedged traders usually run low leverage on each leg and keep spare collateral ready to top up margin.

Risks and common mistakes

• Using maximum leverage. High leverage puts the liquidation price very close to entry, where normal volatility can reach it.
• Ignoring interest and funding. A trade that is flat on price can still lose money to borrow costs or funding payments.
• Forgetting fees scale with size. Trading fees apply to the full leveraged position, not your margin.
• Relying on a margin call. Automatic liquidation can happen faster than you can react.
• Mixing strategies in one cross-margin account. A loss on one trade can drain collateral from another.

How ArbTide helps

For hedged margin positions, the cash-and-carry strategy page explains how the spot and perp legs work together. To check how far the price can move before a leg is liquidated, use the liquidation price calculator.