Cross Margin

What is Cross Margin

In this margining method, margin is shared between open positions and orders.

In cross margin, the entire balance in an account is available to be utilised to keep positions/ orders open and avoid liquidations. The margining systems automatically allocates (i.e. adds or removes) margin as prices move. Therefore, liquidation is triggered only when the entire account balance has been used up.

Cross margin also provides PNL offsetting. This means that the unrealised profit from an open position can be used to support a loss making position or to place new orders.

Math for Cross Margin

It is intuitive to understand cross margin in the framework of margin required (to support existing positions and orders or to place new orders) and collateral available to meet this requirement.

Margin Requirement

Margin required to place a new order or open a position is called the Initial Margin. Initial Margin requirement for a set of positions and orders is equal to the sum of the Initial Margin requirement for each of the positions/ orders in the set. Orders that will close a position do not require any margin. If the trader is unable to meet the Initial Margin requirement, they are not allowed to open new positions.

Margin required to keep a position open is called the Maintenance Margin. Maintenance Margin requirement for a set of positions is equal to the sum of the Maintenance Margin requirement for each of the positions in the set. If the trader is unable to meet the Maintenance Margin requirement, their positions are forcefully closed, i.e. go into liquidation.

The formulae for computing Initial Margin and Maintenance Margin are the same as for Isolated margin.

Collateral Available

Collateral available for margining is comprised of the following:

• Wallet balances: This includes your wallet balance.

• Unrealised PNLs: The net PNL of all the positions, computed off the respective mark prices. If the combined PNL is positive, it adds to the Collateral Available. If not, this term reduces the Available Margin.

• Long option value: The value of long options positions also add to the Collateral Available. A natural corollary of this is that if you are looking to acquire both long and short options positions, aquiring long options positions first would be advantageous from margin requirement perspective.

It is important to note that only wallet balances can be used for buying options, i.e. unrealised PNLs and long option value cannot be used for buying options.

Margin Ratios

Initial Margin Ratio (IMR) = Initial Margin Requirement/ Collateral Available

Maintenance Margin Ratio (MMR) = Maintenance Margin Requirement/ Collateral Available

IMR > 100% means the trader does not have sufficient collateral to meet the initial margin requirement. To reduce margin requirement, all open orders are cancelled when IMR exceeds 100%.

MMR > 100% means that trader does not have sufficient collateral to meet the maintenance margin requirement and thus liquidation is triggered.

Available Margin

Available Margin is the collateral that is currently not in use and is available for opening new positions or orders.

Salient points about cross margin

• Your entire account balance will be used for margining

• Because margin requirements are measured and maintained for the entire set of positions and orders in your account, it is not possible to compute liquidation prices for individual positions

Liquidation methodology

Cross margined accounts go into liquidation when Maintenance Margin Ratio (MMR) exceeds 100%. At this point, the trader does not have sufficient collateral to meet the maintenance margin requirement of open positions.

Recall that open orders are canceled when the trader does not have sufficient collateral to meet the initial margin requirement for open positions and orders.

Therefore, when a cross margined accounts goes into liquidation, it would typically not have any open orders. Thus, margin requirement can only be lowered by scaling down positions, either partially or fully. Whether a position can be scaled down partially depends on the size of the position. The logic for partial liquidation for a given position is the same as for isolated margin. The liquidation process stops as soon as a state is achieved in which IMR < 100%.

Liquidation Warning

A liquidation warning is triggered as soon as the IMR goes above 100% and is shown on the platform at the top in a ribbon. This may or may not result in an actual liquidation depending on changing UPNL of positions or margin addition or trader's management of their positions and orders.

What to expect when your account goes into liquidation

Please note that you will not have access to your account while it is in liquidation. This means you will not be able to close your positions or cancel open orders or place new orders. Typically, the liquidation process should not take more than a few seconds.

Once the liquidation process is complete, we will send you an email which will have full details of the action taken by the Liquidation engine.