Position-Based Margin is a risk management methodology where the margin required to maintain an open derivatives position is calculated based on the specific risk characteristics of that individual position, rather than on a portfolio-wide basis. In crypto institutional options trading and futures markets, this approach means that each separate long or short contract requires collateral independently, reflecting its standalone potential for loss, without considering offsetting effects from other positions.
Mechanism
Operationally, Position-Based Margin systems calculate margin requirements by assessing the theoretical maximum loss of a single position under various market stress scenarios. This typically involves mark-to-market valuation, volatility analysis, and applying specific risk parameters to each open contract. The trading platform’s risk engine independently monitors each position’s collateral against its calculated margin, triggering margin calls if individual positions fall below maintenance thresholds.
Methodology
The strategic application of Position-Based Margin aims to provide a granular and conservative approach to risk control, particularly in markets with high volatility or for traders who manage individual positions without complex portfolio hedging. While it may require higher aggregate collateral compared to portfolio margining, it simplifies risk attribution and ensures that each trade is adequately collateralized on its own merit, thereby reducing systemic risk for the clearing entity and maintaining capital adequacy.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
