- At ACDX, your initial margin for your positions is calculated isolatedly in each subaccount.
- To maximize your capital efficiency, we adopt a new methodology — Smart Cross Margin — to determine the initial margin required.
Why Cross Margin?
- In both traditional and crypto market, cross margin refers to the margin shared between multiple open positions within a particular account. Also, if you have positive unrealized profits and losses (unrealized PnL) from your open positions, the unrealized PnL will become part of the available collateral.
- Cross margin benefits you the most when you have more than one position. Imagine a scenario that you have a Long ETH Perp position and a Short BTC Perp position. When the market goes up, it is very likely ETH and BTC will go up together. Then, you will have unrealized profit from ETH Perp, and unrealized loss from BTC Perp at the same time.
- By using cross margin, the unrealized profit can offset the unrealized loss within your account. However, it cannot be done with isolated margin. At worst, you may face a scenario that you make lots of unrealized profit from one position, while the other position gets liquidated due to the loss.
What is Smart Cross Margin?
- We understand traders’ need for being capital efficient with their trading strategies. With cross margin, traders can better utilize their collateral by sharing the unrealized PnL across all positions within the same subaccount.
- For the traders who have a more sophisticated strategy (e.g. speculation, hedging, yield enhancement), cross margin provides them a big playground to execute their trades with less concern of being liquidated.
- At ACDX, we decide to take things further and introduce Smart Cross Margin. Our system is able to identify the underlying of your position. Let’s say you have positions for different BTC contracts, i.e. Long Perp, Short December, and Short March, we consider them as the same underlying when calculating the initial margin.
- You have a calendar spread trading strategy with the positions of Long 1 BTC-PERP, Short 2 BTC-Z20, Long 1 BTC-H21. Assume the initial margin for 10x is as simple as 10% of the position.
- BTC-PERP (Perpetual) = $10,000 | BTC-Z20 (Dec 20) = $11,000 | BTC-H21 (Mar 21) = $12,000
Under Cross Margin Methodology
= (1 BTC Perp + 2 BTC December + 1 BTC March) * 10%
= $44,000 * 10% = $4,400
- $4,400 initial margin is charged for all the positions
Under Smart Cross Margin Methodology
Long Position = ( 1 BTC Perp + 1 BTC March) * 10%
= $23,000 * 10% = $2,300
Short Position = 2 BTC December * 10%
= $22,000 * 10% = $2,200
- So only $2,300 initial margin is charged for all positions
For each underlying within the same subaccount
Maximum Account Leverage: 1x / 3x / 5x / 10x / 20x / 50x / 100x
Base Initial Margin Ratio (Base IMR): 1 / maximum account leverage
Token Multiplier: Margin multiplier for each token
Position Size: Quantity of each position
Long (Short) Position Size: Sum of all Long (Short) Position Size for the same underlying
Underlying Position Size: Max ( absolute (Long Position Size), absolute (Short Position Size) )
Position Initial Margin Ratio (Position IMR): Max (Base IMR, Token Multiplier * sqrt (underlying position size) )
Position Maintenance Margin Ratio (Position MMR): 60% of Position IMR
Position Notional: Qty * Mark Price
Long Position Notional: Sum of all Position Notional for Long Position
Short Position Notional: Absolute (Sum of all Position Notional for Short Position)
Total Position Notional: Maximum (Long Position Notional, Short Position Notional)
Underlying $Initial Margin (Underlying $IM): Total Position Notional * Position IMR
Subaccount $Initial Margin: Sum of all Underlying $IM
There is position limit for highly leverage position (i.e. 50x or 100x)
In each subaccount with 50x / 100x leverage,
Sum of all underlying (Total Position Notional * Position Limit Adj) across subaccounts < $1,000,000
For details, please refer to POSITION LIMIT article