💵Collateral & Cross-Margin Accounts

Introduction

On GemaX, the cross-margin mechanism is crucial, consolidating liabilities across a user’s trading account to offset margin between positions. This approach means your portfolio effectively serves as collateral for multiple open positions. This significantly enhances the capital efficiency of your portfolio and account.

Note: Isolated margin accounts will be introduced in future versions. Currently, to isolate margin, traders can create sub-accounts dedicated to single positions.

Understanding Collateral

Before engaging in trades, users are required to deposit USDC as collateral. This collateral is essential to ensure that traders have ample funds to cover potential losses.

Note: Solvers deposit an equivalent amount of USDC as collateral into the bilateral trade agreements made between the trader and solver. This ensures perfectly symmetrical agreements, with all trades settled in USDC.

Credit Valuation Adjustment (CVA): CVA serves as a penalty imposed on either the trader or solver in the event of liquidation. This penalty is paid to the non-liquidated party, serving as an incentive to maintain balanced positions and acting as a form of liquidation insurance.

Understanding Margin Types

• Isolated Margin: This approach restricts liability to the initial margin posted for an individual position, commonly employed for speculative and volatile positions. It is a favored option for perpetuals trading across different exchanges.

• Cross-Margin: The liabilities from various positions are distributed throughout an account, balancing margins between positions. This strategy decreases margin necessities by evaluating the overall portfolio risk, thereby reducing the likelihood of liquidations for individual positions and necessitating lower initial margins.

Isolated Margin Example

A trader with $20,000 USDC on GemaX decides to open a BTC perpetual position valued at $50,000 with 10X leverage. They use $5,000 USDC as collateral, placing it into an isolated sub-account. In the event of liquidation, only the $5,000 USDC initial margin in the specific sub-account is at risk, ensuring that the remaining $15,000 USDC in other sub-accounts remains unaffected.

Note: To segregate collateral on GemaX, you need to employ separate sub-accounts for each position you wish to isolate.

Cross-Margin Example

A trader possessing $20K USDC on GemaX initiates a BTC perpetual position valued at $50K and an ETH perpetual position valued at $30K. Through cross-margin, both positions draw from the shared $20K USDC collateral. In scenarios where the BTC position faces losses but the ETH position gains, the profit from the ETH position can contribute to sustaining the necessary margin for the BTC position, averting premature liquidation.

Benefits of Cross-Margin:

1. Enhanced Portfolio Capital Efficiency: Cross-margin accounts utilize the entire portfolio as collateral, reducing overall margin needs and enabling more trades with the same capital. This approach optimizes fund usage, offsetting gains and losses across positions to minimize liquidation risk.

2. Lower Margin Requirements: Cross-margin accounts typically require lower margin, benefiting both sophisticated and retail traders.

3. Automated Risk Management: GemaX automatically calculates and shifts margin between open positions to maintain required levels, assisting traders during market volatility.

4. Risk/Reward Customization: Traders can adjust leverage for individual positions based on their risk preferences.

5. Portfolio Margining: Unrealized profits from one position can offset margin requirements elsewhere, preventing liquidation.

Streamlined Account Management:

1. Unified Interface: GemaX provides a unified and user-friendly interface, allowing traders to effortlessly monitor and manage all open positions, evaluate overall risk, and make well-informed trading decisions.

2. Real-Time Updates: The platform delivers real-time updates on market conditions and portfolio performance, enabling traders to respond promptly to market fluctuations.

3. Automated Calculations: All essential calculations, including margin requirements and potential profits or losses, are automatically executed and presented, streamlining the trading process for users.

Portfolio Risk Management:

1. Visual Risk Indicators: GemaX employs visual risk indicators to clearly depict the risk levels of your portfolio, offering insights into when action is needed to avert liquidation.

2. Dynamic Adjustments: The platform automatically adapts to market changes, offering real-time feedback on the risk levels linked to each open position.

3. Proactive Notifications: Traders receive instant notifications on the user interface when risk levels escalate, enabling timely adjustments to positions or the addition of collateral.

Conclusion

GemaX's cross-margin account system is crafted for effective and secure trading, providing reduced margin needs, automated risk management, and streamlined account oversight. These attributes empower traders to navigate the market with confidence, optimizing the balance between risk and reward.