What is Leverage, Futures and Margin?

Before trading derivatives on our platform, it's important to understand how leverage, futures, and margin work — and the risks involved. This article covers the key concepts you need to know.

How does leverage work?

Leverage allows you to open a position larger than your available funds. While this can multiply your returns when the market moves in your favour, it equally amplifies your losses when it moves against you.

A common misconception is that leverage only increases your upside. In reality, the same multiplier applies to losses. Positions can be liquidated rapidly if the market moves sharply against you, sometimes before you have time to respond.

Example: You deposit $1,000 and open a $10,000 position at 10x leverage. A 5% favourable move earns you $500 (50% return on your capital). But a 10% move in the opposite direction wipes out your entire $1,000.

You can review and adjust your leverage settings at any time. See How to adjust your leverage levels and How to trade perpetual futures on OKX for guidance.

How much can I lose from trading futures?

When trading futures, your maximum possible loss is all of your collateral. This is different from spot trading, where losses are bounded by the asset's price movement. In a leveraged futures position, if the market moves past your margin threshold, the exchange will liquidate your position and your full collateral can be lost.

There is no scenario in which the exchange absorbs your loss or limits it to a partial amount by default. Risk management is your responsibility.

Example: You post $500 as collateral. A sudden market move triggers liquidation — the exchange automatically closes your position and your full $500 is gone.

For more detail on how liquidation is triggered and handled, see the Liquidation FAQ.

How does the maintenance margin requirement work?

Every open position has a maintenance margin requirement. This is a minimum margin ratio that must be maintained to keep the position open. If your margin falls below this threshold, the exchange's liquidation engine will automatically close part or all of your position to cover the shortfall. This happens immediately and without a grace period.

It's important to note that liquidation does not occur at your entry price, it occurs at the prevailing market price at the time of liquidation, which may result in a worse outcome than expected.

Example: Your margin ratio drops to 0.5% against a 1% maintenance margin requirement. The liquidation engine closes part of your position immediately. Setting a stop-loss above your estimated liquidation price is the most reliable way to protect your collateral before this threshold is breached.

For further reading, see why leveraged positions aren't always fully closed out, and introduction to perpetual swap funding fees.

Important notice

Trading derivatives involves significant risk and may not be suitable for all users. You may lose all of your funds. Please ensure you fully understand the risks before trading, and only use funds you can afford to lose.

If you have questions, please reach out to our OKX Assistant.