Perp Leverage Explained: Margin, Liquidation, and PnL

Leverage lets you control a larger position with a smaller margin balance. It magnifies both profit and loss. The two margins that matter are initialand maintenance margin.

• Initial margin: what you post to open a position.
• Maintenance margin: the minimum you must keep to avoid liquidation.
• Higher leverage = smaller buffer to liquidation.

Liquidation happens when your margin falls below maintenance requirements. On most venues, liquidation uses mark price, not last trade.

• Biggest beginner mistake: max leverage on volatile assets.
• Use lower leverage and wider buffers.
• Size positions so a normal swing doesn’t wipe you out.

• Start with 2x–5x leverage until you’re consistent.
• Avoid cross margin if you’re new; isolated keeps risk contained.

• Avoid liquidation guide: Avoid Liquidation in Perps
• Funding basics: Funding Rate Explained