How margin trading works
With 5x leverage, collateral of 1,000 controls a position of 5,000. A 10% move in the trader's favour earns 500, half the collateral, and a 10% move against loses the same. A 20% move against would wipe the collateral out, and the platform liquidates before that point.
In spot margin, the trader borrows the asset or the money itself, pays interest on the loan, and can go short by borrowing an asset and selling it. In derivatives such as perpetual futures, nothing is borrowed: the contract is leveraged by design and the margin is a deposit against losses.
Cross margin shares one pool of collateral across all positions, and isolated margin ring-fences collateral per position.
How margin trading is regulated
In the EU, recital 94 of MiCA says that the regulation does not address the lending and borrowing of crypto-assets and leaves national law untouched. MiCA also does not apply to crypto-assets that qualify as financial instruments as MiFID II defines them.
In the UK, the Financial Conduct Authority's ban on selling derivatives that reference cryptoassets to retail clients came into force on 6 January 2021. On 1 August 2025 the FCA said that its ban on retail access to cryptoasset derivatives would remain in place.
What a platform needs to offer margin trading
A lending pool or funding mechanism, real-time valuation of collateral, margin tiers, a liquidation engine and an insurance fund. Each is a ledger and risk function, not a feature of the order book.
Margin trading or spot trading?
- Spot trading
- The trader pays in full and owns the asset. The most that can be lost is what was paid.
- Futures and perpetuals
- Contracts on the price of an asset, leveraged by design, with no loan and usually no delivery of the asset.
Where Margin trading shows up in a platform
Modules that do the work
- Matching engineA low-latency order book for spot markets, with market makers and outside liquidity.
- LedgerThe double-entry book of record behind every balance, fee and transfer.
- PortfoliosHoldings, performance and statements for investors, across stocks and ETFs.
- Market dataLive and historical prices for crypto, stocks and FX, from the data vendors you choose.
Platforms that need it
Guides that go deeper
Where it is written
The laws and standards this page's facts come from.
- Regulation (EU) 2023/1114, MiCA, Articles 2 and 3 and recital 94 (EUR-Lex)
- FCA, PS20/10: Prohibiting the sale to retail clients of investment products that reference cryptoassets
- FCA, FCA opens retail access to crypto ETNs, 1 August 2025
General information, not legal advice: what applies to you depends on your services and your market.