---
id: "prereq-margin-and-leverage"
type: "prereq"
source_timestamps: ["28:30:00"]
tags: ["trading", "finance"]
related: ["framework-liquidation-cascade"]
reason: "Required to understand why Bitcoin prices can drop violently independent of fundamental news."
sources: ["carlasare"]
sourceVaultSlug: "cardone-carlasare-bitcoin-macro-2026Jun25"
originDay: 3
---
# Mechanics of Margin and Leverage

## What You Need to Know

1. **Margin** — collateral posted to open a leveraged position.
2. **Leverage** — borrowed capital used to increase the notional size of a position. 10× means a $1,000 deposit controls $10,000 of exposure.
3. **Maintenance margin** — the minimum collateral required to keep a position open as price moves against you.
4. **Margin call** — a demand to add collateral when maintenance margin is breached.
5. **Forced liquidation** — the automatic, market-order close of a position by the exchange's risk engine when collateral is exhausted. In crypto perpetuals, there is typically no human margin call — the engine closes you instantly.
6. **Liquidation price** — the price at which forced liquidation occurs, calculable in advance.

## Why This Is Prerequisite

Without this background, the [[framework-liquidation-cascade|liquidation cascade framework]] is incomprehensible — it sounds like a conspiracy theory. With this background, the framework is a straightforward consequence of mechanical exchange rules.

It is also why the action item [[action-avoid-crypto-leverage]] is non-negotiable: leverage in a volatile asset like Bitcoin is mathematically designed to wipe out retail traders during routine moves.

## Connected Concepts

- [[concept-leveraged-perpetuals]]
- [[framework-liquidation-cascade]]
- [[contrarian-crashes-are-leverage-flushes]]