Initial Margin

Initial Margin is the minimum amount of collateral that a trader must deposit with a broker or exchange to initiate a new leveraged position in an options or futures contract. It serves as a performance bond, ensuring that the trader has sufficient equity to cover the immediate potential losses associated with market movements.

In cryptocurrency derivatives, initial margin requirements are often higher than in traditional finance due to the increased volatility of the underlying assets. This buffer protects the exchange and the central counterparty from default risk during the time it takes to liquidate a position.

The requirement is calculated based on the notional value of the contract and the risk profile of the specific asset. By mandating a significant upfront commitment, exchanges discourage reckless over-leverage and align the trader's incentives with the stability of the platform.

If the account balance falls below this required level, the trader may be restricted from opening new positions. It acts as the first line of defense in the protocol's risk management architecture.