Equity Cushion

An equity cushion is the surplus value in a trading account above the minimum maintenance margin required. It represents the buffer that protects a trader from immediate liquidation during periods of adverse price movement.

A larger equity cushion allows a position to withstand greater volatility without triggering a margin call. Traders actively manage this cushion by adding collateral or reducing their position size when they anticipate increased market stress.

In the context of derivatives, the equity cushion is dynamic and changes with every price tick. Maintaining an adequate cushion is the primary strategy for surviving market volatility.

It is the difference between a successful trade and a forced liquidation. Those who ignore the importance of this buffer are often the first to be wiped out during market turbulence.

It is a fundamental concept for any participant engaging in leveraged financial instruments.