What Is Initial Margin?

Initial Margin Defined

Initial margin is the minimum amount of collateral you must provide to open a new leveraged position in perpetual futures trading. Think of it as a security deposit - you put up a fraction of the total position value, and the exchange provides the rest through leverage.

For example, if you want to open a $10,000 BTC long position at 10x leverage, you need $1,000 in initial margin. The $1,000 is your collateral - it is your skin in the game. The remaining $9,000 of exposure is provided by the leverage mechanism. This initial margin is what makes leveraged trading accessible: instead of needing $10,000 to get $10,000 of exposure, you only need $1,000.

How Initial Margin Determines Position Size

The relationship between initial margin, leverage, and position size is straightforward: Position Size = Initial Margin multiplied by Leverage. If you have $500 and use 20x leverage, your maximum position size is $10,000. With 5x leverage, the same $500 only opens a $2,500 position.

Conversely, the initial margin required for a specific position is: Initial Margin = Position Size divided by Leverage. Want a $50,000 position at 10x leverage? You need $5,000 in initial margin. The same position at 25x leverage only requires $2,000.

This is why leverage is such a powerful tool - and such a dangerous one. Lower initial margin requirements mean you can control larger positions with less capital. But they also mean that adverse price movements consume a larger percentage of your margin. A 5% price move against a 20x leveraged position wipes out 100% of your initial margin, leading to liquidation.

Relationship to Leverage

Initial margin and leverage are two sides of the same coin. The initial margin rate is simply the inverse of the leverage multiplier. At 10x leverage, the initial margin rate is 10% (1/10 of the position value). At 20x leverage, it is 5%. At 100x leverage, it is just 1%.

This mathematical relationship makes it easy to calculate in either direction. If you know the leverage, you know the margin rate. If you know how much margin you want to commit, you can determine the maximum leverage for a given position size. The key insight is that higher leverage always means less margin relative to the position - and therefore less buffer before liquidation.

On Hyperliquid, each asset has a maximum allowed leverage that determines the minimum initial margin rate. For major assets like BTC and ETH, leverage up to 50x may be available (2% initial margin). For stock perps and smaller assets, the maximum might be 20x (5% initial margin). These limits exist to manage risk given each asset's typical volatility and liquidity profile.

Initial Margin vs Maintenance Margin

Initial margin is what you need to open a position. Maintenance margin is what you need to keep it open. Initial margin is always higher than maintenance margin, and the gap between them is your safety buffer.

For example, an asset might require 5% initial margin (20x leverage) but only 2.5% maintenance margin. When you open the position, you provide 5%. As the trade moves against you, your effective margin decreases. You will not be liquidated until your margin drops to the 2.5% maintenance level. The 2.5% gap gives your position room to absorb some adverse movement.

In cross margin mode, your entire account balance counts toward meeting both initial and maintenance margin requirements. In isolated margin mode, only the margin specifically assigned to the position is considered. Understanding both concepts is essential for effective risk management.

Practical Examples

Example 1 - Conservative approach: You have $5,000 in your account and want to go long on BTC at $65,000. At 3x leverage, you need $5,000 / 3 = $1,667 in initial margin per $5,000 of position. Your total position size would be $15,000, controlling about 0.23 BTC. A 33% price drop would be needed to liquidate you.

Example 2 - Aggressive approach: Same $5,000 account, same BTC trade, but at 20x leverage. Your initial margin is $5,000 / 20 = $250 per $5,000 of position, allowing a $100,000 position (about 1.54 BTC). But now only a 5% price drop would liquidate you. The larger position amplifies both profits and risks dramatically.

Use the liquidation calculator and PnL calculator to model different leverage and margin scenarios before committing real capital. Understanding these numbers before you trade is far better than learning them during a liquidation.

Initial Margin on Hyperliquid

On Hyperliquid, the initial margin is deposited in USDC. When you select a leverage level and enter a position size in the Beacon trading interface, the required initial margin is calculated and displayed before you confirm the trade. This transparency ensures you always know exactly how much collateral is being committed.

Hyperliquid supports adjusting leverage on existing positions, which effectively changes the margin allocation. If you increase leverage on an open position, some margin is freed up (but your liquidation price moves closer). If you decrease leverage, more margin is committed (and your liquidation price moves further away). This flexibility lets you adapt your risk profile as your view on the trade evolves.