Margin Maintenance

Margin maintenance is the minimum amount of collateral that a trader must hold in their account to keep a leveraged position open. If the account value falls below this threshold due to adverse price movements, the position is subject to liquidation.

This mechanism is fundamental to the architecture of derivatives trading, ensuring that the counterparty or the protocol remains protected against default. In crypto, this is often handled by smart contracts that monitor account equity in real-time.

If the maintenance margin is not met, the protocol automatically closes the position to prevent further losses. It serves as a buffer to protect the integrity of the market.

The specific requirements are often determined by the volatility profile of the underlying asset. Higher volatility assets typically require higher maintenance margins to account for increased risk.

Effective margin management is the primary defense against insolvency.