Three terms in plain English
Leverage
A ratio between the position size and the initial margin. At 10×, $1,000 supports $10,000 of exposure. It does not promise a tenfold profit.
Initial margin
The collateral needed to open the position. It remains at risk; it is not a fee or a maximum loss guarantee.
Equity
The value of your account or position, including unrealised profit and loss. Maintenance margin is the minimum buffer the venue requires to keep the position open.
One BTC position, three price moves
Suppose BTC costs $50,000. You open a long position of 0.2 BTC: the position is worth $10,000. At 10×, the simple initial-margin calculation is $10,000 ÷ 10 = $1,000. Every 1% move of the position is $100, before trading fees and funding. These are illustrative prices, not a historical trade.
| BTC move against the long | Loss on $10,000 | Equity from $1,000 |
|---|---|---|
| −1% | −$100 | $900 |
| −5% | −$500 | $500 |
| −9.5% | −$950 | $50 |
Now keep the same $1,000 collateral but use 2× instead: exposure is $2,000. A 5% BTC decline loses $100, leaving $900. With 10×, that same 5% decline loses $500, leaving $500. The market moved equally; your position size changed.
Why a position can close before zero
A tempting shortcut says “10× means liquidation exactly after a 10% fall.” That is wrong. In a toy model where the minimum remaining buffer is fixed at $50, a $950 loss already reduces the $1,000 to $50: about a 9.5% BTC fall. This $50 is a teaching assumption, not an exchange requirement. Actual thresholds depend on maintenance tiers, mark price, fees, funding, collateral, open positions and whether margin is isolated or shared across the account.
Forex CFD: a different close-out rule
Forex CFDs are a separate product. In a simplified EU retail example, $30,000 of major-currency exposure at 30:1 requires $1,000 initial margin. Suppose this is the only position and the whole account initially holds $1,000. After a $500 loss, equity is $500. ESMA’s retail CFD rule describes closing one or more positions when account equity reaches 50% of the minimum required margin, here $500. This is an account-level rule, not a universal crypto liquidation price. Jurisdiction, client category and provider terms matter.
A real shock: Switzerland, 2015
On 15 January 2015 the Swiss National Bank removed its CHF 1.20-per-euro floor. EUR/CHF moved through a market with disrupted liquidity. A stop order could execute well away from its trigger; forced closure could be delayed too. Our documented Swiss franc investigation follows that real event. The $50,000 BTC and $30,000 CFD trades above are teaching examples, not claims about trades made that day.
Swiss franc shock: documented case →Four checks before opening a trade
- 1Calculate position size and the dollar loss for a realistic adverse move before selecting leverage.
- 2Check the venue’s maintenance margin, mark-price trigger and estimated liquidation or close-out level.
- 3Read whether collateral is isolated to one trade or shared across positions; fees and funding reduce your buffer.
- 4Plan for gaps: a standard stop is an instruction to execute, not a guaranteed fill price.
Sources and further reading
Only primary documents are linked externally. The calculations above assume no fees, funding or slippage unless stated.
Educational illustration only. Leveraged trading can rapidly lose the posted collateral; gaps and contract terms can change the final loss. Check your provider’s rules before trading.