Portfolio Margin Mode – Coincall

Portfolio Margin uses a risk-based model to determine margin requirements by valuing a portfolio across a range of underlying price and volatility movements.

In this mode, users can trade spots, perpetual, and options. The risk-based model considers positions in perpetual and options combined, potentially reducing the margin requirements of a portfolio and significantly improving the efficient use of capital. Similar to the Multi-currency Margin mode, the user's equity in different currencies will be calculated into an equivalent USDT amount for use as a margin for order placement and holding positions.

Requirements

Before switching to the Portfolio margin, please confirm:

No open orders, or loans in your account.
Total Equity ≥ 1,000 USDT.

Calculations

The portfolio maintenance margin is determined by calculating the maximum potential loss that can occur in a portfolio under the following parameters:

Price Range
Volatility Range Up
Volatility Range Down
Futures Contingency
Options Sum Contingency

Parameter settings may be adjusted by the Coincall risk management team without prior notice and serve only to demonstrate the criteria used in calculations.

Below is a detailed explanation of the maintenance margin calculation logic.

Part 1: Calculate the Maximum Possible Loss (ML)

The total profit and loss scenarios are calculated for the portfolio under 11 different price fluctuation scenarios for various spot indices:

For BTC/ETH and USDC, price fluctuations are considered at 0%, +/-3%, +/-6%, +/-9%, +/-12%, and +/-15%; for other currencies, fluctuations are at 0%, +/-6%, +/-12%, +/-18%, +/-24%, and +/-30%. Below is the process using BTC as an example:

Calculate the profit and loss of BTC perpetual contract positions under the aforementioned price scenarios.
- The profit and loss of perpetual contracts are denoted as A(X%), where, for instance, a 3% increase in the spot index results in A(+3%).
Calculate the profit and loss of BTC option contract positions under the aforementioned price scenarios:
- Using a 3% increase in the BTC spot index price (X% = 3%) as an example:
  - Calculate the sum of profit and loss for all option contract positions when the implied volatility (IV) increases by 45%, resulting in profit and loss denoted as 'a'.
  - Calculate the sum of profit and loss for all option contract positions when IV remains unchanged, resulting in profit and loss denoted as 'b'.
  - Calculate the sum of profit and loss for all option contract positions when IV decreases by 30%, resulting in profit and loss denoted as 'c'.
    - Substitute the adjusted underlying asset price and IV into the Black-Scholes formula to obtain the new option premium, and compare it with the current option premium to determine the profit and loss of the option.
- Take the maximum loss among 'a', 'b', and 'c' as the maximum potential loss of the options under the respective index price movement scenario, denoted as B(+3%).
Calculate the overall profit and loss L(X%) of the portfolio by adding A(X%) and B(X%) for each fluctuation scenario. Hence, for each scenario, L(X%) = A(X%) + B(X%).
Compare the 11 values of L(X%), and select the minimum value as the maximum potential loss (ML) for the portfolio margin requirement:

ML = Min(L(0), L(+3%), L(-3%), …, L(+15%), L(-15%))

For example, suppose the current BTC spot index price is 70,000 USDT. The client holds the following positions:

Short position in a BTC perpetual contract with a notional value of 1 BTC.
Short position in a BTC-31MAY24-72000-P option contract with a notional value of 0.5 BTC, with a premium of 6,000 USDT.
Long position in a BTC-26APR24-73000-C option contract with a notional value of 0.5 BTC, with a premium of 2,000 USDT

Calculations for a 3% increase in the spot index price:

The spot index price increases by 3% to 72,100 USDT. The profit/loss is calculated as (72,100 - 70,000) * (-1) = -2100 USDT. Hence, A(+3%) = -2100 USDT.
When the spot index price increases by 3%, calculate the profit and loss of the options under different IV changes.
- When IV increases by 45%, the new premium for BTC-31MAY24-72000-P is 7,000 USDT, resulting in a loss of -500 USDT, and for BTC-326APR24-73000-C is 4,000 USDT, resulting in a profit of 1,000 USDT. Hence, a = 500 USDT.
- Similar calculations yield b = 400 USDT and c = -600 USDT.
- Thus, B(+3%) = min(500, 400, -600) = -600 USDT.
Therefore, under a 3% increase in the spot index price scenario, the portfolio's profit/loss is L(3%) = A(3%) + B(3%) = -2100 USDT - 600 USDT = -2700 USDT.
Similarly, calculate the maximum loss L(X%) for other scenarios.
Finally, select the scenario with the highest loss, such as L(3%), resulting in ML = L(3%) = -2700 USDT.

Part 2: Calculating Contingency Component

The purpose of the Contingency Component is to establish a baseline for the margin required for offsetting positions, preventing a situation where positions accumulate without a corresponding increase in margin.

Contingency Component = ((Net short positions at each strike price of options × 1%) + (Absolute value of futures positions × 0.6%)) × Spot index price

= (((max(0, sum of absolute values of short options contracts at the same strike price for all expiration dates - sum of absolute values of long options contracts at the same strike price for all expiration dates)) × 1%) + (Absolute value of futures positions × 0.6%)) × Spot index price

For a call option BTCUSD-31MAR23-40000-C with a long position of 1 BTC and a put option BTCUSD-31MAR23-40000-P with a short position of 1 BTC, where the strike price is 40,000, the net short position at this strike price is 0, thus no need to increase the Contingency Component. If the short position for the put option BTCUSD-31MAR23-40000-P is 3 BTC, resulting in a net short position of 2 BTC at the strike price of 40,000, the Contingency Component needs to be increased by 2 BTC × 1% = 0.02 BTC.

Then, calculate the sum of futures and options separately, and multiply the total by the spot index price to obtain the Contingency Component.

Maintenance Margin = Maximum Possible Loss (ML) + Contingency

Continuing with the specific example from Part One, where the current BTC spot index price is 70,000 USDT, and there's a short position of 1 BTC in BTC perpetual contracts, a short position of 0.5 BTC in BTC-31MAY24-72000-P options, and a long position of 0.5 BTC in BTC-26APR24-73000-C options. At the strike price of 72000, the net short position for options is 0.5 BTC; at the strike price of 73000, the net short position is 0 BTC because there's only a long position. The absolute value of futures positions is 1 BTC. The Contingency Component = ((0.5 × 1%) + (1 × 0.6%)) × 70,000 = 770 USDT.

Finally, the maintenance margin for the BTC risk unit = Absolute value of Maximum Possible Loss (ML) + Contingency Component = 2,700 + 770 = 3,470 USDT.

Finally, sum up the maintenance margins for all risk units to obtain the Total Maintenance Margin (MM).

Liquidation Rules for Portfolio Margin

Whenever the maintenance margin of a user exceeds 100%, the liquidation process will commence. During liquidation, open futures and options positions can be closed, and/or delta hedging can take place via perpetuals. Coincall risk management has discretion in handling the user’s portfolio to reduce the risk of bankruptcy.

The liquidation process will prioritize the instrument contributing the most to the margin in the risk matrix for liquidation. If the attempted liquidation order does not execute within certain safety parameters to maintain fair prices, the algorithm will move to the next highest contributing instrument in the risk matrix.

If attempts to liquidate the relevant instruments are unsuccessful, efforts will be made to reduce the risk through delta hedging on the perpetual, provided this action also reduces the maintenance margin.

Note that we will always attempt to reduce instrument positions but the backup hedging using the Perpetual could result in opening or increasing an existing position there.