Futures and leverage: margin, liquidation and funding explained

Leveraged products let you control a large position with a smaller deposit. That efficiency comes with mechanics every trader should understand before using them.

Initial and maintenance margin

• Initial margin is the collateral required to open a position. At 10× leverage it is roughly 10% of the position value.
• Maintenance margin is the minimum collateral required to keep it open. It is lower than initial margin and usually rises for larger positions (tiered margin).

Liquidation

When losses reduce your collateral to the maintenance requirement, the exchange closes the position. For an isolated, linear (USD-margined) position, a simplified estimate is:

long liquidation  ≈ entry × (1 − 1/leverage + maintenance margin rate)
short liquidation ≈ entry × (1 + 1/leverage − maintenance margin rate)

Real liquidation prices differ because of fees, funding payments, tiered maintenance rates, mark-price rules, insurance funds and whether margin is isolated or cross. Treat any calculator's output — including ours — as an educational estimate and rely on your exchange's displayed value.

Leverage doesn't change risk — the stop does

If you size by your stop, the money at risk is the same at 3× or 20×. What higher leverage changes is how close liquidation sits to entry. The rule of thumb: your stop must be hit long before liquidation could be.

Funding (perpetual swaps)

Perpetual contracts use periodic funding payments between longs and shorts to keep the contract near spot. Over long holds, funding can materially change the P/L of a position.

Dated futures

Exchange-traded futures have expiry dates, fixed contract sizes and point values. Position size is expressed in contracts: contracts = risk amount ÷ (stop in points × point value).

Checklist before using leverage

1. Size from the stop, not from the leverage setting.
2. Confirm liquidation is well beyond the stop.
3. Know your exchange's fee and funding schedule.
4. Prefer isolated margin while learning.