In Isolated Margin approach margin is explicitly assigned to each position and is not shared across positions.A position is specific to a particular contract. Thus, for each contract, two margin sub-accounts are maintained:
Position Margin: Margin allocated to all existing (may include multiple long/ short positions) in given derivatives contract
Order Margin: Margin allocated to all open orders in a given derivatives contract
It is worth noting that Unrealized PnL is not factored into Position Margin or Order Margin.
Position Margins and Order Margins are allocated from your Wallet Balance. Thus, at any time, the amount that remains unallocated is what is available for placing a new order. This is referred to as Available Balance.
Available Balance = Wallet Balance − (Position Margin + Order Margin)
Every time a new order is placed, the system does three things:
- Computes the Reservation margin for this new order,
- checks whether Reservation Margin <= Available Balance, and
- if 2 holds, then transfer Reservation Margin amount from Available Balance to the Order Margin of the contract.
Risk Limits: Margin Requirement vs. Position Size
The Initial Margin and Maintenance margin requirements for any contract are increased as the position size increases. Increasing the margin requirement helps to ensure orderly liquidation of large positions and reduces the incidences of auto-deleveraging.
Margin requirement remains flat till a certain position size (Position Threshold). Once position size crosses this threshold, margin requirement increases linearly with position size.
When Position size is less than or equal to Position Threshold:
Initial Margin%=Initial Margin%MIN
Maintenance Margin%=Maintenance Margin%MIN
and, when Position size is greater than Position Threshold:
Initial Margin%=Initial Margin%MIN+SlopeIM∗(Position Size−Position Threshold)
Maintenance Margin%=Maintenance Margin%MIN+SlopeMM∗(Position Size−Position Threshold)
The values of Initial Margin%MIN Maintenance Margin%MIN, Position Threshold and Slope vary from contract to contract and are available in the contract specifications.
Reserved Margin Computation
Initial Margin (IM) requirements for a standalone order are as follows:
Buy limit order
IM=(Initial Margin%∗#Contracts∗Multiplier∗Limit_Bid_Price)
Buy market order
IM=(InitialMargin%∗#Contracts∗Multiplier∗MarkPrice)
Sell limit order
IM=(InitialMargin%∗#Contracts∗Multiplier∗Max(Limit Offer Price,BestBid)
Sell market order
IM=(InitialMargin%∗#Contracts∗Multiplier∗Max(MarkPrice,BestBid)
Now, if there are existing positions/ open orders in the contract, then the Initial Margin requirement for the new combination of position and open orders is recomputed. For this computation, positions or orders on opposite side are netted in such a manner that for two offsetting orders, margin is reserved only once.
Reserved Margin is then the difference of the Initial Margin requirement for the combined position (existing + new order) and the Position Margin and Order Margin currently allocated to the derivative contract.
Impact of order cancellations on margin
In a given contract, Order Margin account contains margin blocked for all the current open orders. If one or more of these open orders is cancelled, the Initial Margin requirement for the remaining open orders and existing orders is recomputed. The new Initial Margin requirement will either be same as earlier or lower. In the latter case, excess margin is released.
Auto Margin Top-up
In Isolated Margin mode an open position has access to only the margin assigned to that position. Consequently, an open position may go into liquidation if the position margin erodes, even if there is sufficient balance available in a user’s account. This behaviour can be modified through the use of Auto Margin Top-up.
Auto Margin top-up is a feature that enables traders to automatically add margin to open positions in order to avoid liquidation. If Auto Margin Top-up is enabled for a position, whenever the position is about to go into liquidation Position Margin is replenished.
Recall that a position goes into liquidation when the Remaining Position Margin (i.e. Initial Margin - Unrealised Losses) is equal to or lower than the Maintenance Margin. The quantum by which margin for a position is topped up each time is computed as follows:
For contracts where maximum leverage is 100x: margin added to the position is equal to (minimum Initial Margin - Maintenance Margin), where minimum Initial Margin is the margin required to open the position at the highest allowed leverage.
For contracts where maximum leverage is <100x: margin added to the position is equal to 0.5 times (minimum Initial Margin - Maintenance Margin), where minimum Initial Margin is the margin required to open the position at the highest allowed leverage.
If the Available Balance is less than the amount required for the top-up, then all of the Available Balance will be used to replenish the margin of the position.
How to activate/ deactivate Auto Margin Top-up
Auto Margin Top-up can be enabled/ disabled by toggling a switch which is available next to each open position entry. You also have the option to have Auto Margin Top-up activated by default for all positions you acquire. This can be enabled by checking Auto-margin Top-up option in the preferences section.
Liquidation Fee Rate in Isolated margin mode :
Isolated margin mode uses the following penalty factors based on the asset and maximum allowable leverage:
Futures
BTC: 0.05% x notional size
ETH: 0.10% x notional size
PAXG: 0.20% x notional size
All others with:
Max leverage 100x: 0.10% x notional size
Max leverage 50x: 0.20% x notional size
Max leverage 25x 0.50% x notional size
Max leverage 20x: 0.50% x notional size
Max leverage 10x: 1.00% x notional size
Options
BTC: Min (20% x premium, 0.05% x notional size)
ETH: Min (20% x premium, 0.10% x notional size)
XAUT: Min (20% x premium, 0.05% x notional size)
Note: Whenever a position goes in liquidation, a fee proportional to the notional size is charged. 18% GST is applicable on all calculated liquidation fees.
Example 1: Futures Contract Consider a BTC futures position being liquidated:
Notional: $1,000,000
Fee rate = 0.05%
Liquidation Fee = 0.0005 × 1,000,000 = 500
Final Fee (assuming leftover equity > 500): 500 x 1.18 (GST) = 590
Example 2: Options Contract Consider a BTC options position being liquidated:
Notional: $500,000
Premium: $10,000
Notional rate = 0.05%
Premium rate = 20%
Based on notional = 0.0005 × 500,000 = 250 Based on premium = 0.20 × 10,000 = 2,000
Liquidation Fee = min(250, 2000) = 250
Final Fee (assuming leftover equity > 250): 250 x 1.18 (GST) = 295