Leverage, margin & P&L

Leverage is the ratio between the size of your position and the money you put behind it. Post $1,000 and control $10,000 of BTC and you are at 10x. Nothing is lent to you in the everyday sense — the exchange simply lets you carry exposure larger than your balance, as long as you keep enough collateral against it.

That collateral is the margin. It comes in two flavours that people constantly conflate. Initial margin is what you must post to open the position — at 10x, 10% of notional. Maintenance margin is the smaller amount you must keep at all times to stay open, often 0.5%–1% of notional. Your losses eat the gap between the two, and when the gap is gone you are liquidated.

What leverage really changes

Here is the part worth internalising: leverage does not change your exposure to the market, it changes how much room you have to be wrong. $10,000 of BTC exposure earns and loses the same dollars whether you funded it with $10,000 or with $1,000. What differs is the distance to the exit — roughly 100% at 1x, 20% at 5x, 10% at 10x, 5% at 20x.

Which is why "I'll use 20x but with a small position" and "I'll use 2x with a big one" are not the same trade at all, even at identical notional. The first hands the market a five-percent trapdoor.

Isolated vs cross margin

Isolated margin ring-fences a fixed amount of collateral for one position. If it goes, only that amount goes; the rest of the account is untouched. The trade-off is that the position cannot draw on your balance to survive a wick.

Cross margin pools the whole balance as collateral for every open position. Positions survive far deeper drawdowns and offsetting trades net out — but a single bad one can drain the account, because there is no wall between them. Isolated for anything speculative; cross for hedged books you are actively watching.

Unrealized vs realized P&L

Unrealized P&L is the profit or loss on a position that is still open — the number flickering green and red on your screen. It is computed from the mark price, not the last trade, and it is entirely provisional: it is what the position would be worth if you closed it this second, and it changes with every tick.

Realized P&L is what happens when you actually close, in full or in part. At that moment the number stops moving, fees and accrued funding are netted out, and the result lands in your balance. Nothing else counts.

Two consequences follow. First, unrealized profit is not yours yet — but it is counted as margin, so it can support the position and then vanish exactly when the market turns. Second, unrealized losses are what drive you toward liquidation, which is why an account can be destroyed without a single "losing trade" ever appearing in its realized history.

Concretely: long 1 BTC at $60,000 with $6,000 of isolated margin (10x). At $63,000 you are showing $3,000 unrealized — a 50% return on margin, still on paper. Close half and $1,500 becomes realized, minus fees and whatever funding accrued; the other half keeps floating with the market.