Funding, Margin, and Liquidation

Microstructure, order books, perps, funding, and algorithmic execution.

Updated Jun 22, 2026Reviewed by GaiaEx Academy Editorial

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.

Once funding, margin, and liquidation is clear, the mechanics in the next section read as common sense rather than trivia.

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.

If you remember one thing about how funding, margin, and liquidation works, make it this — funding transfers value between longs and shorts.

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.

Swap in your own product or market and the same funding, margin, and liquidation logic should still hold; if it doesn't, you have found an assumption worth checking.

A funding, margin, and liquidation example earns its place by changing what you would actually do next, not by sounding impressive.

RememberDecision rule: Size leverage so the trade can survive expected volatility, not only ideal price movement.

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.

Notice the pattern behind most funding, margin, and liquidation errors: a tidy, confident story quietly replaces a fact you could have verified.

Spotting this funding, margin, and liquidation error in others is easy; the skill is catching it in your own reasoning when you feel confident.

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.

Before relying on funding, margin, and liquidation, separate what you can verify from what you are taking on trust, and treat the trusted part as the real risk.

With funding, margin, and liquidation, the point is not fear but calibration: match the size of the decision to the strength of the evidence.

Calculate liquidation distance.
Check current and expected funding.
Keep margin buffer for volatility.

Practice

Put funding, margin, and liquidation to work

Lock in Funding, Margin, and Liquidation by applying it once — choose a real Crypto Trading Deep Dive example and walk it through the checks below.

Aim for funding, margin, and liquidation judgement you can defend, not a tidy summary you can merely recite.

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