Futures and Perpetuals: Margin, Funding, and Liquidation
A contract is different from holding an asset
Futures and perpetual contracts provide exposure to price movements. Holding a contract is not the same as holding the underlying cryptocurrency in a spot wallet. Traditional futures have an expiry, while perpetual contracts generally have no scheduled expiry and require ongoing attention to margin and funding.
Position value, margin, and leverage
Position value describes market exposure. Margin is collateral supporting the position. Leverage expresses the relationship between exposure and margin; it does not make the position less risky.
Consider a simplified linear contract with a 1,000 USDT position and 200 USDT of initial margin. That is approximately 5× leverage. A 2% price movement corresponds to about 20 USDT of profit or loss on the position, or 10% of the initial margin, before fees, funding, and other adjustments. The same leverage magnifies the effect of an unfavorable move.
OrangeX's margin overview distinguishes isolated margin, assigned to a position, from cross margin, which can use available futures account balance across positions. Read the selected mode carefully: funds you consider unused may still support risk under cross margin.
Funding is an ongoing consideration
Perpetual contracts use funding payments to help connect contract prices with the underlying market. Depending on the funding rate, long positions may pay short positions or the reverse. A position can incur funding even when you have not closed it. Check the current rate, settlement time, and contract rules rather than assuming every market follows an identical schedule. See OrangeX's funding explanation.
Why liquidation matters
If collateral becomes insufficient under maintenance requirements, the platform may liquidate a position. OrangeX uses mark price in its liquidation calculations; mark price and the latest trade price are not interchangeable. Its liquidation protocol explains this distinction and the role of maintenance margin.
Do not calculate liquidation by simply dividing 100% by leverage. Actual rules can involve maintenance requirements, margin mode, position size, fees, and funding. The illustration above describes price exposure, not a liquidation threshold.
Before opening a position
Be able to explain the contract, exposure, margin mode, funding, and liquidation conditions in your own words. Decide how you would respond to an adverse move before it occurs. Protective orders can help manage a position but do not guarantee a particular execution price in every market condition.
Leveraged derivatives can produce rapid losses and may be unsuitable for many users. This article explains mechanics; it does not recommend opening a position or selecting any leverage level.
