Crypto Trading Deep Dive
Funding, Margin, and Liquidation
Microstructure, order books, perps, funding, and algorithmic execution.
In this lesson
- How funding and margin work
- When liquidation happens
Key takeaways
- 1Funding transfers value between longs and shorts
- 2Liquidation triggers when margin can't cover losses
- 3Mark price, not last price, drives liquidations
Lesson summary
Funding, margin, and liquidation define the economics of leveraged perp trading.
Mental model
Getting funding, margin, and liquidation straight
Funding, margin, and liquidation define the economics of leveraged perp trading. They decide whether a position can survive normal market movement.
- How funding and margin work
- When liquidation happens
Mechanics
How to reason about funding, margin, and liquidation
Margin is collateral supporting the position.
Funding transfers value between longs and shorts at scheduled intervals.
Liquidation occurs when equity falls below maintenance requirements.
- Funding transfers value between longs and shorts
- Liquidation triggers when margin can't cover losses
- Mark price, not last price, drives liquidations
Example
A concrete funding, margin, and liquidation example
A trader long with high leverage can be liquidated by a small adverse move even if the broader thesis later proves right.
Common mistakes
How funding, margin, and liquidation trips learners up
Many traders focus on entry direction and ignore funding cost, mark price, and how close liquidation sits.
Risk notes
What can go wrong with funding, margin, and liquidation
Funding can become expensive, volatility can widen mark-price moves, and forced liquidations can cascade through the market.
- Calculate liquidation distance.
- Check current and expected funding.
- Keep margin buffer for volatility.
Practice
Put funding, margin, and liquidation to work
- Calculate liquidation distance.
- Check current and expected funding.
- Keep margin buffer for volatility.
Review
Key terms
- Leverage
- Borrowed capital used to amplify a position — magnifying both gains and losses.
- Liquidation
- Forced closure of a leveraged position when margin can no longer cover its losses.
- Margin
- Collateral posted to open and maintain a leveraged position.
- Volatility
- How sharply a price swings over time — higher volatility means higher risk and opportunity.
- Collateral
- Assets locked to back a loan or position.
Source notes
Editorial references
These references are starting points for verifying the mechanisms, risk checks, and product context behind this lesson.
Before you continue
Can you do these?
- Calculate liquidation distance.
- Check current and expected funding.
- Keep margin buffer for volatility.
Related learning
Keep reading
Checkpoint
Finish this lesson
Pass the check to save progress, then continue through the track in order.
Lock in this lesson
Answer every question correctly to complete the lesson.
Liquidation occurs when…