💰Margin Types & Collateral

What & what?

Cross-margining leverages the total value of a user's trading account to equalize margins across different positions. By doing so, your entire portfolio effectively becomes collateral for any trades at once, significantly improving the capital efficiency of your portfolio and account.

In the future, isolated positions will be available to provide flexibility to traders.

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Margin Types

• Cross-Margin: This margin system pools liabilities from various positions within an account, balancing out margins between them. By assessing the total risk of the portfolio, cross-margining reduces overall margin requirements. This method helps in avoiding liquidations of individual positions and lowers the needed initial margins.

Traders should note that liquidations now are no longer isolated to single positions but the account in its entirety!

• Isolated Margin: This confines the liability to the initial margin set for a specific position.

This Margin type is currently not supported on Kwenta v3.

Cross margin, also known as "portfolio margining," offers several benefits for traders, particularly in the realms of risk management, capital efficiency, and trading flexibility. Here are some of the key advantages:

1. Enhanced Capital Efficiency: Cross margin allows traders to use the entire balance of their account as collateral for their open positions. This means that profits from one position can be used to cover losses in another, maximizing the use of capital without the need to allocate specific funds to individual trades.

2. Reduced Margin Calls: By pooling the collateral across all positions, traders can reduce the likelihood of receiving a margin call for a specific position, as excess margin from winning positions can compensate for losing ones. This integrated approach can provide a buffer against market volatility.

3. Improved Risk Management: Cross margining facilitates better risk management by enabling a more holistic view of exposure across all trades. Traders can more effectively hedge their positions and manage risk on a portfolio level, rather than managing risk in isolation for each trade.

4. Simplified Account Management: Managing one consolidated margin balance is simpler than monitoring separate margins for individual positions. This simplicity can save time and reduce the administrative burden, allowing traders to focus more on strategy and less on account management.