Cross Margin
What is Cross Margin
In this margining method, margin is shared between open positions and orders. In cross margin, each position/ order is allocated the minimum margin required to keep the position/ order open. This means that all positions and orders are opened/ kept at the highest allowed leverage.
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.
It is important to note that cross margin works within contracts that have the same settlement currency. As things stand currently, cross margin on Delta Exchange works only for futures and options contracts that are settled in USDT.
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 available collateral balances 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, with one key difference: in isolated margin leverage is selected by the trader, whereas in cross margin, highest allowed leverage is used. Further, since max allowed leverage is the function of position size, as the position/ order size increases, leverage is adjusted automatically.
Collateral Available
Collateral available for margining is comprised of the following:
Wallet balances: This includes both the wallet balance of the settlement currency (i.e. USDT) as well as collateral values of balances of other coins eligible for multi-currency collateral.
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.
Multi-currency Collateral
In multi-currency collateral system, dollarised values of coins other than USDT are included in the USDT Collateral Available. This means that balances in coins like BTC and ETH can be used as margin for trading in USDT settled contracts.
The Collateral Value of coins (other than USDT) is computed by factoring in a haircut, which is referred to as Contribution Factor.
Let us understand this with an example. A user has 10 BTC in their account. Current BTC price is 20000 USDT and the Contribution Factor for BTC is 0.90. In this case, the USDT Collateral Value of this BTC = 10 * 20000 * 0.9 = 180,000 USDT.
The current values of Contribution Factor for various coins is available on the balances page, under Available Margin Tab. Contribution factors can be changed without any prior notice at the sole discretion of Delta Exchange.
Available Margin Contribution
Available Margin is that part of the collateral that is currently unencumbered and is available for taking new positions. The contribution of non USDT coins to the Available Margin is computed by multiplying the Available USDT notional of a coin with its Contribution Factor.
It is worth noting that:
Staked coins or coins invested in robo strategies or locked coins have no collateral value
First the USDT collateral in the account is completely used and only then non USDT collateral is used
Since the settlement currency of the contracts traded in cross margin mode is USDT, PNL is always realised in USDT.
If you do not have any USDT in your account and you trade USDT settled contracts in cross margin mode, the following could happen:
USDT gets credited to your account when you realise a profit
Some of your coins are converted to USDT to provide for realised losses
Some of your coins are converted to USDT when you buy an option
Salient points about cross margin with multi-currency collateral
Cross margin is available only on USDT settled futures and options contracts. This means futures, including perpetual contracts, and options on BTC and ETH are eligible for cross margining
Multi-currency collateral is tightly coupled with cross margin and cannot be disabled
Your entire account balance including your balances of coins other than USDT, will be used for margining. Obviously, coins which have a contribution factor of 0 will not be used for margining
Cross margin automatically uses the highest possible leverage for the selected contract based on selected quantity and allowed leverage for that contract.
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
Multi-currency collateral: examples
As discussed above, in cross margin mode, PNL is always realised in USDT. That is because cross margin is available only for USDT settled contracts. When combined with multi-currency collateral, this can lead to some non-obvious situations. Let us understand these with some examples.
A trader has the following starting balances:
USDT
1000
BTC
1
ETH
10
DETO
1000
Here, we will first calculate the Available Margin, by using the formula mentioned above:
USDT
1000
100%
1
1000
BTC
1
95%
10000
9500
ETH
10
95%
1000
9500
DETO
1000
0%
0.1
0
Available Margin for the account is 20,000 USDT.
Scenario 1: Profit or Loss Realization
The trade opens a position which has an initial margin requirement of 5000 USDT. To meet this margin requirement, 1000 USDT and 0.421 BTC (4000 / (95% * 10000)) would be used.
USDT
1000
0
1000
BTC
1 (10000 USDT)
0.579 (~5790 USDT)
0.421 (~4210 USDT)
ETH
10
10 (~10000 USDT)
0
DETO
1000
1000 (~100 USDT)
0
Profit realisation: The trader closes this positions and realises a profit of 3000 USDT. At this point, BTC balances that were blocked become free and USDT balance increases to 4000 USDT.
USDT
1000
4000
BTC
1
1 (~10000 USDT)
ETH
10
10 (~10000 USDT)
DETO
1000
1000 (~100 USDT)
Loss realisation: The trader closes this positions and realises a loss of 4000 USDT. Since the trader has only 1000 USDT, 3000 USDT worth of BTC would be automatically sold to provide for the remaining 3000 USDT loss. Therefore, after the settlement of this trade, the trader's balances will look like this:
USDT
1000
0
BTC
1 (~10000 USDT)
0.7 (~7000 USDT)
ETH
10 (~10000 USDT)
10 (~10000 USDT)
DETO
1000 (~100 USDT)
1000 (~100 USDT)
Scenario 2: Option purchase
The trader buys an option for 5000 USDT. Since the trader's USDT balance is only 1000, BTC worth 4000 USDT will be sold automatically to come up with the remaining 4000 USDT required to complete this trade.
Post this trade, the trader's balances will look like this:
USDT
1000
0 USDT
BTC
1
0.579 (~5790 USDT)
ETH
10
10 (~10000 USDT)
DETO
1000
1000 (~100 USDT)
Next, the trader sells this option for 4500 USDT, thus realising a loss of 500 USDT. The 4500 USDT in premium received is credited to the USDT balance.
USDT
1000
4500 USDT
BTC
1
0.5 (~6000 USDT)
ETH
10
10 (~10000 USDT)
DETO
1000
1000 (~100 USDT)
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.
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