All lessons
Margin, leverage and liquidation
A position can be forced closed before your longer-term idea gets a chance. Learn the liquidation mechanism before the direction call.
Separate collateral from exposure and forced closeout.
Margin is collateral supporting a contract position. Leverage compares notional exposure with the supporting equity under a defined convention. A small price change acts on the larger exposure, so losses can consume collateral quickly even when the asset itself has moved only modestly.
Initial margin opens a position; maintenance requirements determine whether it can remain open. Liquidation procedures, mark prices, fees and insurance arrangements are venue-specific. A simple 'one divided by leverage' estimate is not a reliable exact liquidation formula.
Isolated margin generally allocates collateral to a position, while cross margin can share eligible equity across positions under platform rules. Sharing collateral may delay one liquidation while exposing more of the account. Neither mode replaces position sizing, and adding collateral changes the amount exposed.
Let’s use numbers · hypothetical example
Hypothetical: 100 collateral supports 1,000 linear notional. A 5% adverse move produces about 50 gross loss before fees and funding. Forced closeout can occur before collateral reaches zero because maintenance margin and charges apply.
Keep in mind
Liquidation is a platform risk action, not a planned stop-loss or protection against every possible loss.
Your turn
On paper, compare gross losses for 1%, 3% and 5% adverse moves on the same 1,000 exposure.
A quick check before we move on
Is collateral equal to notional exposure?
- No
- Yes
- Only for losing positions
Check answer
No Collateral supports the position; price changes apply to its contract exposure.
Sources and further reading
Content reviewed: 29 October 2026
Educational material with hypothetical examples. Trading can cause substantial losses. A course, pattern, stop order or past result cannot guarantee a profit or limit every loss. Practise in simulation and check current rules and product terms in your jurisdiction.