Portfolio Margin

What is Portfolio Margin

Portfolio margin computes the maximum loss that a portfolio can have given certain risk paramaeters like spot/vol shocks. This maximum loss calculated is takes as the margin requirement, and hence the name portfolio margin.

Portfolio margining is a risk based approach to margining that allows for effective margin coverage while ensuring efficient use of capital. In this method, the risk of a group of positions and orders in futures and options with the same underlying is analysed together to compute the combined margin requirement for the entire group.

Portfolio margin tends to be more capital efficient than isolated or standard cross margin, i.e. requires less margin for the same set of positions. This capital efficiency emerges when a portfolio has positions/ orders with offsetting risks. With standard cross margin, the margin requirement for a group of positions is simply the sum of the margin requirement for each position individually. So, recognition of offsetting risks is just not possible. Portfolio margin overcomes this limitation by assessing the risk of the entire group together.

Obvious examples of such portfolios are option spreads and futures calendar spreads. The combination of long and short positions in spread trades makes them much less risky than standalone long or short positions in the same contracts. This lowering of risk is taken into account in portfolio margin, unlike in the case of isolated or cross margin.

ETH Options Parameters

BTC Options Parameters

Initial and Maintenance Margin for Positions

• Spot price movement has a step size of 3%, and IV movement has no step size.
• In the spot price case, the Spot Price is calculated as Spot Price + (100 + i) / 100, where i represents the Spot price movement case.
• Option IV cases are defined as (Minimum, No Change, Maximum).
• When calculating the margin requirement for an options instrument, the cases are combinations of spot price and IV cases.

Futures Maintenance Margin Calculation

• For each case of spot price movement, the PnL is calculated for each position, and the maximum loss is taken as the margin requirement.
• A contingency component is added to the margin requirement to account for the risk of the underlying futures position.
• The contingency is a fixed percentage of the open futures position and is dependent on the underlying.

Options Maintenance Margin Calculation

• In the case of multiple options positions, the PnL for the same IV cases of a single spot price movement case is added together, and the minimum of the resulting three values is taken as the maximum loss.
• The same process is performed for each spot price movement, and the minimum of all values is taken as the maximum loss for the entire options portfolio.
• A contingency component is calculated based on the net short option exposure and is added to the margin requirement to account for the risk of the short option position.

Total Initial and Maintenance Margin

• The total margin requirement of positions is the sum of the futures margin and options margin discussed above.
• The maximum loss at each spot price movement case is the sum of the futures max loss and options max loss for that spot price movement case.
• The minimum of PnLs calculated al all spot price movement cases is taken as the maintenance margin requirement.
• For each currency, a separate portfolio margin matrix is maintained, and the total maintenance margin is the sum of the maintenance margin of each currency.

Initial Margin = Maintenance Margin * 1.2

Initial Margin for orders

Options

Futures