Simple Margin

The inner workings of GRVT's Simple Margin

The GRVT Docs are a living document that will be dynamically and continuously edited and updated as the GRVT product suite evolves.

The Simple Margin algorithm considers the risk of each position independently to compute margins. Then applies discounts based on hedged deltas.

Position Charge — Computes the risk of each position independently and applies that as a position charge.

# MARGIN OVERVIEW
# simulation_charge takes intermarket spread simulation into account
maintenance_margin = position_charge_m - delta_credits_m - intermarket_credits
initial_margin = position_charge_i - delta_credits_i - intermarket_credits

Position Charge

Each position’s risk is computed using the below formulas:

• Futures and Perps

  • Margin: margin = size (S) * derivative_mark_price (P) * margin_ratio (M)

  • Initial Margin Ratio: M = min(100%, 2% + (S * P / $500M))

  • Maintenance Margin Ratio: M = min(100%, 1% + (S * P / $500M))

  • With this formula, the maintenance margin ratio increases linearly from 1% to 100% as position size increases from $0 to $495M

• Short Options

  • Margin: margin = size (S) * (P) * margin_ratio (M)

    • Call: P = spot_mark_price

    • Put: P = max(spot_mark_price, option_mark_price)

  • Initial Margin Ratio: M = min(100%, max(15% - OTM, 7.5%) + (S * P / $50M))

  • Maintenance Margin Ratio: M = min(100%, max(7.5% - OTM, 5%) + (S * P / $50M))

  • Out of Money Ratio

    • Call: OTM = max(0, (strike_price - P) / P)

    • Put: OTM = max(0, (P - strike_price) / P)

• Long Options

  • Margin: margin = size (S) * option_mark_price (P)

The above parameters are used as an example to simplify explanations. Our risk team will derive actual parameters that are appropriate for the exchange, and the market conditions.

Parameters

The following parameters are used in our simple margin computation (per asset config):

# PER ASSET CONFIGS
FUTURES_INITIAL_MARGIN = 0.02
FUTURES_MAINTENANCE_MARGIN = 0.01
FUTURES_VARIABLE_MARGIN = 500_000_000

SHORT_OPTIONS_INITIAL_MARGIN_HIGH = 0.15
SHORT_OPTIONS_INITIAL_MARGIN_LOW = 0.075
SHORT_OPTIONS_MAINTENANCE_MARGIN_HIGH = 0.075
SHORT_OPTIONS_MAINTENANCE_MARGIN_LOW = 0.05
SHORT_OPTIONS_VARIABLE_MARGIN = 50_000_000

Walkthrough

The below walkthrough will demonstrate how the position charge algorithm works.

Event	Collateral	Position Assets	Prices	Balance	Maintenance Margin	Withdrawal Eligibility
	0	None		0	0	0
Deposit 10k USDT	+10k USDT	None		10k USDT	0	10k USDT
Long 30 ETH Perps at 1k USDT	- 20k USDT	+ 30 ETH Perps (+30k value)	ETH F/P price @ 1k USDT	10k USDT	300 USDT	9700 USDT
Short 10 ETH Futures at 1k USDT	-10k USDT	+ 30 ETH Perps (+30k value) - 10 ETH Futures (-10k value)	ETH F/P price @ 1k USDT	10k USDT	+ 300 USDT + 100 USDT	9600 USDT
Short 80 ETH Call Options with 1k strike at 50 USDT	-6k USDT	+ 30 ETH Perps (+30k value) - 10 ETH Futures (-10k value) - 80 ETH Options (-4k value)	ETH F/P price @ 1k USDT ETH O price @ 50 USDT ETH Spot price @ 995 USDT	10k USDT	+ 300 USDT + 100 USDT + 5970 USDT	3630 USDT
Long 160 ETH Call Options with 1k strike at 50 USDT (Netting)	-14k USDT	+ 30 ETH Perps (+30k value) - 10 ETH Futures (-10k value) + 80 ETH Options (+4k value)	ETH F/P price @ 1k USDT ETH O price @ 50 USDT	10k USDT	+ 300 USDT + 100 USDT + 4000 USDT	5600 USDT
Price Tick ETH O price @ 40 USDT	-14k USDT	+ 30 ETH Perps (+30k value) - 10 ETH Futures (-10k value) + 80 ETH Options (+3200 value)	ETH F/P price @ 1k USDT ETH O price @ 40 USDT	9.2k USDT	+ 300 USDT + 100 USDT + 3200 USDT	5600 USDT (stays constant)
Price Tick ETH F/P price @ 650 USDT ETH O price @ 25 USDT	-14k USDT	+ 30 ETH Perps (+19500 value) - 10 ETH Futures (-6500 value) + 80 ETH Options (+2000 value)	ETH F/P price @650 USDT ETH O price @ 25 USDT	1k USDT	+ 195 USDT + 65 USDT + 2000 USDT	[Liquidatable] - 1260 USDT
[Liquidate] Short 70 ETH Call Options at 20 USDT	-12.6k USDT	+ 30 ETH Perps (+19500 value) - 10 ETH Futures (-6500 value) + 10 ETH Options (+250 value)	ETH F/P price @650 USDT ETH O price @ 25 USDT	650 USDT	+ 195 USDT + 65 USDT + 250 USDT	140 USDT