The buffer between current equity and the level at which the broker would issue a call or liquidate.
Cushion is the distance to trouble, stated in money or in market move. If maintenance requirements total $18,000 and equity is $30,000, the cushion is $12,000 - and if the portfolio moves 1.4% per $12,000, the cushion is about a 1.4% adverse day.
Expressing it as a market move is the useful form, because it turns an abstract number into a scenario: "a 3% index drop puts me on call". Once you can say that sentence, sizing decisions become obvious.
Cushion erodes from two directions at once during stress: equity falls while requirements rise. Building the cushion in calm conditions is cheap; building it during a stress-testing scenario is impossible, because everyone is selling the same things you would have to sell.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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