Margin Trading
Trading with borrowed funds to amplify potential returns, using existing crypto holdings as collateral. The trader posts a 'margin' (collateral) and borrows additional funds from the exchange or protocol. If the position moves against the trader beyond the maintenance margin, it gets liquidated to repay the borrowed amount.
“On Bybit, you can margin trade Bitcoin with up to 100x leverage. Posting $1,000 as margin at 10x leverage gives you a $10,000 position, but a 10% adverse move liquidates you completely.”
Leverage
The use of borrowed capital to increase the size of a trading position beyond what the trader's own funds would allow. Leverage amplifies both gains and losses — a 10x leveraged position earns 10x the profit on favorable moves but also faces 10x the losses and can be fully liquidated by a relatively small adverse price movement.
Liquidation
The forced closing of a leveraged position or the seizure and sale of collateral when a borrower's position falls below the required margin or collateralization ratio. In DeFi lending, liquidation occurs automatically via smart contracts when the value of collateral drops below a protocol-defined threshold, protecting lenders from bad debt.
Perpetual Futures (Perps)
A type of derivative contract that lets traders speculate on a cryptocurrency's price with leverage, without owning the underlying asset or dealing with expiry dates. Unlike traditional futures that expire, perpetual futures use a funding rate mechanism — periodic payments between long and short traders — to keep the contract price anchored to the spot price.
Collateral
Cryptocurrency assets pledged as security for a loan in DeFi protocols. Borrowers deposit collateral that exceeds the loan value (overcollateralization) to protect lenders from default risk. If the collateral's value falls below a certain threshold relative to the loan, it can be automatically liquidated.