Overview

Margin System Explained

• Single Position per Market and Collateral: Traders are limited to one active position per market for each type of collateral. For instance, it's possible to hold an ETH-margined and a USDC-collateralized position in the same market concurrently, but not to maintain multiple positions with the same collateral type in a single market.

• Independent Margin and Leverage: Each position you hold operates with its own set margin and leverage, allowing for independent adjustments without impacting your other positions. The performance of one position does not influence the outcomes of others.

Understanding Profit and Loss (P/L)

• P/L Calculation: The profit or loss from a position is determined by its market performance, calculated in the same type of collateral used to establish the position.

$$P/L= Size * \ Price\ Move\ (\%) \pm\ Funding$$

• For example, entering a long position with 10,000 USDC at a price of $100 and exiting at $120 results in a 2,000 USDC profit, reflecting a 20% price increase. Conversely, a 20 ETH short position at $1,000 experiencing a rise to $1,050 incurs a 1 ETH loss due to a 5% price uptick.

• P/L Percentage: This is derived from the ratio of profit or loss to the position's margin, e.g., a 0.5 ETH profit on a 1 ETH margin from a 10 ETH position at 10x leverage equates to a +50% P/L percentage.

Profits are allocated from the liquidity pool. Should the pool lack sufficient funds, profit withdrawal must await adequate funding.

Funding Dynamics

• Hourly Rate Adjustment: Funding rates are recalculated every hour for each market, based on the imbalance between long and short positions.

  • As an illustration, a dominance of long positions over shorts in the BTC-USD market results in USDC-margined longs compensating shorts, and vice versa, directly affecting the unrealized P/L of positions.

$$(FF * (OI(short)-OI(long)) / (OI(long)+OI(short))) / (365 * 24)$$

• Funding Factor and Rate Calculation: The Funding Factor represents the annualized rate influencing how longs and shorts settle payments among themselves, dependent on the prevailing direction of open interest.

A negative funding rate indicates that shorts pay longs, while a positive funding rate indicates that longs pay shorts.

Liquidation Process

• Threshold-Based Liquidation: Positions are subject to liquidation when their P/L falls below the designated market liquidation threshold.

  • For instance, a 10 ETH position leveraged 10x with a 1 ETH margin faces liquidation at a -0.99 ETH P/L, adhering to a -99% threshold.

• Consequences of Liquidation: Upon liquidation, the position's margin is absorbed by the liquidity pool, and the position is conclusively closed without imposing additional liquidation fees or affecting other positions within the account.