Margin is the cash/cryptocurrency that must be deposited as collateral for perpetuals positions. Margin protects users from counterparty losses from price changes.
Margin requirements are specific to each contract and takes two forms:
- Initial Margin is the upfront deposit made prior to opening a new position or adding to an existing one
- Maintenance Margin is the minimum amount of cash/cryptocurrency required to maintain a position
Cash/cryptocurrency in trading wallets that is not collateralizing open positions or earmarked for open orders can be used to fund new orders (available margin).
In addition, margin is segregated by cryptocurrency type; Bitcoin can only be used to collateralize contracts with payoff structures (P&L) denominated in Bitcoin and Tether can only be used to collateralize contracts with payoff structures (P&L) denominated in Tether.
When users place orders, BLADE will first calculate the position’s post-trade liquidation price, initial margin requirement and earmarked exit fees as well as the order’s trading fee/rebate.
Next, BLADE will verify the following two conditions:
- Order Price <sub>Longs</sub> > Liquidation Price
- Order Price <sub>Shorts</sub> < Liquidation Price
- Available Margin<sup>1</sup> ≥ (Post-Trade Initial Margin + Post-Trade Earmarked Exit Fees)<sup>2</sup> - (Pre-Trade Initial Margin + Pre-Trade Earmarked Exit Fees)<sup>2</sup> - Trading Fees for Taker Orders
- <sup>1</sup> To fund positions using the same collateral cryptocurrency type that is earmarked for the order
- <sup>2</sup> Only applicable to orders that increase net position size. Orders that reduce net position size will not require earmarked margin for post-trade initial margin requirements or exit fees
If both conditions are true, the order will be immediately processed by BLADE’s matching engine. If either condition is false, the order will be rejected.
Once a position is created, users are responsible for maintaining enough margin such that their position is not liquidated from unfavorable changes in the underlying mark price.
The exact mark price at which a position is liquidated (the liquidation price) will depend on whether users select isolated margin or cross margin as their margin policy. In addition, the liquidation price will fluctuate with unrealized basis payment losses.
Under cross margin, margin is shared among open positions collateralized by the same cryptocurrency, which means that available margin will be used to offset unrealized losses to prevent liquidations. A position using cross margin will be liquidated when:
- Unrealized Losses <sub>Position</sub> ≥ Initial Margin - Maintenance Margin - Unrealized Losses <sub>Other Cross Positions with Same Collateral</sub> + Trading Wallet Balance <sub>Same Collateral</sub>
Cross margin is the default setting on BLADE.
Under isolated margin, margin is restricted to the assigned initial margin and available margin will not be used to prevent liquidations. A position using isolated margin will be liquidated when:
- Unrealized Losses <sub>Position</sub> ≥ Initial Margin - Maintenance Margin
Users always choose and can adjust how much leverage to use for their isolated margin positions.