🎒Portfolio Margin Explained (Vertex)

Let’s say you deposited $100 into the Cross Engine

Clearly, that $100 then becomes part of our Available Funds (aka. Margin).

Every time you enter a new position, the position will take some Initial Margin from that $100 of Available Funds. As the trade evolves, your Available Margin may also fluctuate depending on how the trade performs. For example, if the trade is going badly, it may be necessary for the risk engine to take more from your Available Balance and allocate it to the trade.

On the contrary, if the trade is going well, margin (and uPNL) will be added to your Available Margin, and you may see this value ticking up after entering your trade.

In this section, we’ll explore how PnL works and address some misconceptions. 1. Position sizing and leverage.

The first decision for a trader is to decide which asset to long and which to short. Here we are choosing ETH/BTC.

The user must decide what Position Size they want to achieve ("Enter Position Size")

Let’s say I want to achieve $1000 of notional exposure to ETH/BTC. Here I would type $1000

However, the leverage slider is just a position sizing tool. It doesn’t impact the margin used. It’s purely there because traders are used to seeing and using one. Note the little tooltip:

Inputting $100 and 10x leverage will get me to $1000 notional

But so will inputting $500 and 2x leverage

Or even $1000 and 1x leverage.

The margin required to do a $1000 trade ($57.74 of margin needed) doesn’t really change irregardless of if I specify 1x or 10x leverage. You can experiment with this yourself.

The info box below your Position entry tells you a few key details about the trade you are entering. Pair to Trade: ETH/BTC

Margin Required: $57.81 (this will be deducted from your $1000)

Position Size: $971.29 (it’s lower than $1000 because of the minimum unit sizes you can trade of ETH and BTC i.e. rounded down to the nearest tradeable unit)

Min Position Size: $227, this is the minimum required for this pair (ETH/BTC) and varies depending on the pair.

Max Position Size: $1767, this is the largest position size you can trade given your $100 of Available Balance

2. So then what’s the point in leverage?

Admittedly, the leverage slider is almost redundant when it comes to opening a position.

However, once you have opened one or more trades, the key thing to note is your Account Leverage - shown in the bottom Account info section. Anything above 5x Account Leverage can be deemed risky Let’s go ahead and open this $1000 and see how it changes:

This becomes

The Total Account Value is now $99.66. The Account Leverage of almost 10x corresponds to the fact we’ve opened a $1000 trade with only $100 of Available Margin.

Importantly, users must keep an eye on

1. Liquidation Risk %

2. Funds to Liquidation

3. Account Leverage

3. Available Funds

Approximately $50 of the trade has been allocated as margin to the ETH/BTC trade which is now open.

The remaining $50 is available as Available Margin, and can either be withdrawn or used to open additional positions.

Depending on how ETH/BTC performs, this Available Margin of $50 will either go up or down i.e. uPNL from the ETH/BTC is constantly being “settled”.

4. Liquidation logic

Liquidations ensue when your Liquidation Risk % reaches certain thresholds. The risk engine is complex but essentially you want to ensure this number stays less than 90%. To mitigate liquidation risk, deposit more to your account and/or close existing trades.

Note, we do show an ‘estimated’ liquidation price for each trade but given the path dependence of each leg it’s very inaccurate for the following reasons.

When you pair trade there are multiple different ‘paths’ to get from say a level of 100 to 90 (-10%)

Eg. Asset A could stay flat and asset B could go up 10%

or Asset A could go up 20% and asset B could go up 30%

Etc etc. So the concept of a single liquidation level for a pair is not possible.

The most important thing is to monitor your overall account health and manage risk at a portfolio level.

5. Why we can’t show Closed PNL

Now that we’ve established that margin is constantly being added or removed from a position back to “Available Funds”, it should start to become clear why we can’t show an accurate closed pnl value on the ‘Closed Tab’.

We do show entry and close price so you can evaluate if it was a successful trade.

However, to evaluate if you are making money you need to examine the Total Account Value and see if this is trending up.

Users can compare their Total Account Value to their Net Deposits (Deposits - Withdrawals) to see if they are making money overall.

Summary In summary, the Vertex trading engine operates off the concept of Portfolio Margin. All your longs and shorts are in ‘cross’ with one another and margin is constantly being exchanged between them.

This protects the user since gains on one leg (say the longs) offset losses elsewhere (the shorts), although it’s impossible to isolate just how much margin has moved for one particular pair, especially if a user is running multiple pair trades.

We have redesigned the UI to focus on Total Account Value, Account Leverage and Liquidation Risk %. We highly encourage you to look at those 3 parameters and enter/close trades accordingly!