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Derivatives margin

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Derivatives margin is collateral assigned to support open positions, absorb losses, and satisfy initial and maintenance requirements.

Diamond category cue

Derivatives margin is collateral assigned to absorb position losses and satisfy the venue’s risk requirements.

Why it exists

Section titled “Why it exists”

A leveraged derivative can create notional exposure larger than the cash posted up front. Margin defines the loss capacity a trader must provide before opening or increasing risk and the minimum capacity required to keep positions open.

Traditional-finance analogy

Section titled “Traditional-finance analogy”

A futures margin account is a useful analogy. Crypto venues can continuously revalue collateral and unrealized profit and loss using mark or oracle prices, and code can restrict withdrawals or trigger liquidation automatically. Smart contract custody does not prove the valuation or loss model is sound.

Actors, assets, and claims

Section titled “Actors, assets, and claims”

The trader assigns collateral to a trading venue or clearing system. Oracles value collateral and positions. Liquidators and backstops handle deficient accounts, while governance or risk administrators select eligible assets, haircuts, and requirements. Margin and settlement tokens are assets; open positions, unrealized PnL, funding, and fees are claims or obligations against the account and its counterparties.

Initial, maintenance, and margin mode

Section titled “Initial, maintenance, and margin mode”
  • Initial margin is the requirement for opening or increasing risk.
  • Maintenance margin is the lower keep-open requirement used for liquidation eligibility.
  • Isolated margin confines assigned collateral and loss to a stated position or market.
  • Cross margin shares equity across positions, improving capital efficiency while allowing one loss to consume collateral supporting another.
  • Portfolio margin recognizes modeled offsets and therefore adds model, correlation, and stress-assumption risk.

The labels are not enough: record which assets count, valuation haircuts, price sources, pending orders, unrealized PnL, funding, fees, withdrawal rules, and whether positions on other markets share the account.

Equations and units

Section titled “Equations and units”

For one quote currency:

leverage
= notionalValueUsd / accountEquityUsd


initialMarginRequirementUsd
= notionalValueUsd × initialMarginFraction


maintenanceBufferUsd
= accountEquityUsd - maintenanceMarginRequirementUsd

The fractions are unitless. Leverage is undefined when equity is zero and is economically unsafe to summarize as an ordinary positive ratio when equity is negative. maintenanceBufferUsd is a survival buffer, not automatically the amount available to withdraw or use for a new order.

Step-by-step margin lifecycle

Section titled “Step-by-step margin lifecycle”
  1. Deposit an eligible collateral asset into the defined isolated, cross, or portfolio account.
  2. Value collateral, open positions, pending orders, fees, and funding using the venue’s prices and haircuts.
  3. Check that post-trade equity satisfies the initial-margin requirement before increasing risk.
  4. Open or resize the derivative position and record its notional and profit-and-loss sensitivity.
  5. Revalue the account as prices and funding change, then compare equity with maintenance requirements.
  6. Permit withdrawals only when the remaining account still satisfies every applicable constraint.
  7. If maintenance fails, liquidate or transfer exposure and settle losses through the documented deficit hierarchy.

State transition and flows

Section titled “State transition and flows”

Capital flow moves collateral, fees, funding, and realized settlement. Claim flow creates the derivative position. Information flow supplies prices, haircuts, requirements, and account scope. Return flow moves trading gains or funding from the venue-defined opposing side or pool into account equity. Risk flow follows shared collateral: cross margin can propagate one market’s loss into otherwise profitable positions.

Return source and loss allocation

Section titled “Return source and loss allocation”

Margin is loss-bearing collateral, not a return source. Trading gains and funding come from the opposite side, pool, or venue-defined accounts. Losses first reduce the trader’s equity; insurance, backstops, profitable traders, or other claimants are exposed only through the venue’s stated deficit hierarchy.

Engineer or auditor lens

Section titled “Engineer or auditor lens”

Test zero or negative equity, mixed collateral decimals, stale or zero prices, haircuts, correlated collateral, pending orders, cross-market PnL, fee and funding checkpoints, transfers, withdrawals, isolated-to-cross changes, and initial-versus-maintenance boundary equality. The state used to approve an order must reconcile with the state used to liquidate and settle it.

Hyperliquid’s margin documentation documents one cross and isolated model, including separate initial and maintenance checks. Its formulas and parameters are venue-specific. The documentation was reviewed 2026-08-10.

Common misunderstandings

Section titled “Common misunderstandings”
  • “Margin is the same as notional.” Margin is posted loss capacity; notional measures exposure.
  • “Five-times leverage guarantees a 50% result after a 10% move.” That is only an approximation before fees, funding, slippage, changing equity, and liquidation.
  • “Cross margin is safer.” It may reduce isolated liquidation risk while increasing the assets and positions reachable by one loss.

Continue to funding rate and derivatives liquidation.

Machine-readable model

Key equations

Canonical expressions come from the structured concept record. KaTeX renders the notation, while the plain-text expression and variable table keep its meaning and units inspectable without JavaScript. Read the narrative above for the model's domain, assumptions, and rounding rules.

  1. Equation 1

    Plain-text equation: leverage = notionalValue / accountEquity

  2. Equation 2

    Plain-text equation: initialMarginRequirement = notionalValue * initialMarginFraction

  3. Equation 3

    Plain-text equation: maintenanceBuffer = accountEquity - maintenanceMarginRequirement

Assurance contract

Security properties

These structured statements define desired behavior. Their stable IDs can bind tests, invariants, specifications, audit findings, or proof results without turning descriptive review advice into an assurance claim.

Desired · not evaluated: No test, audit, or proof result is implied until scoped evidence is linked to this property.

  1. SP-01Desired · not evaluated

    Notional, collateral, equity, unrealized profit and loss, funding, fees, and requirements use compatible units and current state

  2. SP-02Desired · not evaluated

    Risk-increasing orders and withdrawals cannot violate initial-margin rules

  3. SP-03Desired · not evaluated

    Liquidation eligibility uses the same maintenance state that settlement enforces

  4. SP-04Desired · not evaluated

    Cross, isolated, and portfolio loss boundaries remain explicit and cannot charge unrelated accounts

Knowledge check

Quiz

Answer in your own words, then open the model answer.

What problem does Derivatives margin exist to address?

Model answer

Margin lets a venue offer leveraged exposure while defining how much loss capacity a trader must maintain before risk-increasing actions or liquidation.