When trading derivatives, margin plays a critical role in determining how much capital is required to open and maintain positions. While margin can enable greater exposure through leverage, it also increases the potential for losses including the risk of liquidation.

This article outlines the four key margin-related metrics you’ll see when trading Derivatives on Bitazza: Margin, Used Margin, Free Margin, and Margin Level. Understanding each of these can help you manage your positions and risk more effectively.

1. What Is Margin?

Margin is the amount of capital required to open and maintain a leveraged position. It serves as collateral to support your exposure to the market.

For example, to open a position worth $1,000 with 10x leverage, you must commit $100 in margin. The remaining value is borrowed through leverage. If the market moves against your position, losses can exceed the margin you’ve committed.

Margin is:

• The minimum capital needed to initiate a leveraged trade
  
  
• Determined by the leverage selected and the size of the position
  
  

Higher leverage requires less initial margin but comes with significantly higher risk.

2. What Is Used Margin?

Used Margin refers to the total amount of margin currently allocated to open positions. This is the capital actively supporting your trades and cannot be used elsewhere while those positions remain open.

Used Margin is important because it affects how much additional capital is available for new trades. 

3. What Is Free Margin?

Free Margin is the amount of capital available in your account to open new positions. It is calculated as:

Free Margin = Equity – Used Margin

Where:

• Equity = Account balance plus or minus any unrealized profit or loss from open positions
  
  
• Used Margin = Margin currently committed to active positions
  
  

Free Margin does not act as a buffer against losses, but it does determine your flexibility to take on additional trades. If Free Margin becomes too low, you may be unable to open new positions, and existing ones may be at greater risk of liquidation if the market moves against them.

4. What Is Margin Level?

Margin Level is a percentage-based metric that helps assess how close your account is to reaching the liquidation threshold. It is calculated as:

Margin Level = (Equity ÷ Required Margin) × 100

Where:

• Required Margin is the total margin necessary to maintain all open positions
  
  

A higher Margin Level indicates that your account has more equity relative to the required margin, while a lower Margin Level means your account is closer to potential liquidation.

It’s important to note that Margin Level is not a safety indicator. Even at levels above 100%, market volatility can cause rapid changes in Equity, and liquidation can still occur if the level falls below platform-defined thresholds.

Final Thoughts

Margin-related metrics are core to leveraged trading. They do not eliminate risk, they define it. Knowing how to monitor Margin, Used Margin, Free Margin, and Margin Level can help you better understand your exposure and make informed decisions when opening or adjusting positions.

Recap:

• Margin is the capital required to open or maintain a leveraged position
  
  
• Used Margin is the margin currently allocated to open trades
  
  
• Free Margin is what remains available for additional position(s)
  
  
• Margin level is a percentage used to assess your margin and liquidation risk
  
  

Understanding these metrics is a fundamental part of responsible trading.

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