Portfolio Margin is a risk-based margin policy that employs stress testing—evaluating mark prices and implied volatility (IV) of underlying assets—to assess the holistic risk of a portfolio. Hedging positions within a derivatives portfolio can partially offset margin requirements, with exact offsets determined by stress testing results.
The Unified Trading Account (UTA) supports Portfolio Margin, enabling risk hedging across USDT/USDC derivatives and Spot markets. Notably, only derivatives margins use stress testing; Spot borrowing and negative balance calculations remain identical to Cross Margin mode.
Advantages of Portfolio Margin
Unlike Cross Margin (position-specific calculations), Portfolio Margin evaluates portfolio-wide risk. Balanced portfolios with hedging positions significantly reduce margin requirements.
Total Margin Components:
- Derivatives Margin: Calculated via stress testing (Spot hedging must be enabled).
- Borrowed Assets Margin: Identical to Cross Margin calculations.
Maintenance Margin
Without Active Derivative Orders
Spot, USDC, and USDT derivatives of the same underlying (e.g., BTC or ETH) merge into a single risk unit.
Formula:
Maintenance Margin = Maximum Loss + Contingency Components
1. Maximum Loss
Stress testing simulates extreme price/IV movements to determine worst-case losses.
Example:
- Trader holds 3 BTC Call Options (sell) and BTC Perpetual longs.
- Stress testing predicts a $4,500 loss on Options but a $3,000 gain on Perpetuals, netting a $1,500 margin requirement.
- Enabling Spot Hedging further reduces margins by treating Spot holdings as offsets.
Near-Expiration Adjustment:
Preset price percentages decay as options near expiry to lower maintenance margins.
2. Contingency Components
Five subcomponents cover extreme volatility:
A. Short Options Contingency = Net Short Options Nominal Value × Coefficient × Index Price
B. Vega Spread Contingency (Options) = Time Difference × Vega Quantity × Factor × Index Price
C. USDT-USDC Spread Contingency
Applies to hedged USDT/USDC positions: = (Absolute Deltas Sum – Net Delta) / 2 × Factor × Index Price
D. Delta Spread Contingency
Calculates time-weighted delta offsets across maturities.
E. Perpetual/Futures Contingency = Σ Absolute Quantities × Risk Factor × Index Price
Spot Hedging Notes:
- Eligible assets (e.g., BTC, ETH) use basis risk factors.
- Ineligible assets don’t reduce margins.
With Active Derivative Orders
Active orders group by delta sign (+/-) and combine with positions. The highest margin from these portfolios determines the requirement.
Example:
- Orders A (+Δ), B (-Δ), and position C yield:
Maintenance Margin = MAX(MM(C), MM(A+C), MM(B+C))
Initial Margin & Liquidation
Initial Margin = Maintenance Margin × IM Factor (varies by risk unit).
Liquidation Triggers:
- Borrowed Assets: Auto-repayment at 85% MMR.
- No Borrowings: Partial liquidation at 100% MMR until 90% MMR.
👉 Learn more about UTA liquidation rules
FAQs
1. How does Portfolio Margin differ from Cross Margin?
Portfolio Margin calculates risk holistically, reducing margins for hedged positions, while Cross Margin treats each position independently.
2. Which Spot assets are eligible for hedging?
BTC, ETH, and select altcoins (see Basis Factor table in the article).
3. How are near-expiration options handled?
Preset price percentages decay proportionally to time left, lowering margins.
4. What happens during liquidation?
Borrowed assets trigger auto-repayment; non-borrowed assets face partial liquidation.