Margin

Two Margin Models

Drake offers two distinct margin systems, each designed for different trading styles and risk preferences.

Cross Margin Portfolio (CMP)

Unified Collateral Approach

All positions share a single pool of collateral. Your entire portfolio is evaluated as one unit, with profitable positions supporting losing positions.

Key Characteristics:

• One collateral pool backs all positions

• Portfolio-wide margin calculation

• Maximum capital efficiency

• High leverage potential

• All positions liquidate together if threshold breached

Best For:

• Experienced traders managing multiple positions

• Diversified portfolios with offsetting positions

• Maximizing capital efficiency

• Traders comfortable with portfolio-level risk

Isolated Margin Portfolio (IMP)

Separated Collateral Approach

Each position maintains its own dedicated collateral allocation. Positions operate independently with no interaction between them.

Key Characteristics:

• Separate collateral per position

• Individual position risk management

• Lower capital efficiency

• Risk contained to specific positions

• Only individual positions liquidate

Best For:

• Risk-conscious traders wanting position isolation

• Testing new strategies with limited capital

• High-risk speculative positions

• Clear risk definition per trade

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Margin Mode Comparison

Feature	Cross Margin (CMP)	Isolated Margin (IMP)
Collateral Structure	Shared pool	Separate per position
Capital Efficiency	High	Lower
Maximum Leverage	Instrument-dependent	Instrument-dependent
Liquidation Risk	Portfolio-wide	Position-specific
Position Support	Profits help losses	No interaction
Complexity	Higher	Lower
Margin Calculation	Portfolio-level	Position-level
Collateral Requirements	Lower total	Higher total
Risk Management	Portfolio-level monitoring	Per-position monitoring
Liquidation Trigger	Portfolio ratio < 100%	Individual position ratio < 100%
Liquidation Impact	All positions close together	Only affected position closes
Margin Utilization	Can use 100% for all positions	Must allocate separately per position
Hedging Benefit	Positions offset each other	No cross-position benefit

Practical Example

Trader Capital: $20,000
Strategy: Open 3 positions

Cross Margin Approach:
- Deposit $20,000 once
- Open Position A: $60,000 notional
- Open Position B: $40,000 notional  
- Open Position C: $20,000 notional
- Total: $120,000 notional (6x average leverage)
- Single margin calculation across all

Isolated Margin Approach:
- Allocate $8,000 to Position A
- Allocate $6,000 to Position B
- Allocate $6,000 to Position C
- Each position operates independently
- Position A liquidates at -$8,000 (others unaffected)
- Position B liquidates at -$6,000 (others unaffected)

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Technical Architecture

Cross Margin Portfolio (CMP)

Margin Calculation:

Margin Ratio = (Total Adjusted Equity + Total Unrealized PnL) / Total Maintenance Margin

Components:

• Adjusted Equity: Collateral value with asset-specific haircuts applied

• Unrealized PnL: Sum of all open position profits/losses

• Maintenance Margin: Sum of minimum requirements across all positions

Thresholds:

• Position opening: ~150% minimum

• Withdrawals: ~150% must remain

• Liquidation: ~100% triggers closure

Liquidation: All positions close simultaneously when portfolio ratio drops below threshold.

Isolated Margin Portfolio (IMP)

Margin Calculation:

Position Margin Ratio = (Allocated Margin + Position PnL) / Position Maintenance Margin

Components:

• Allocated Margin: Specific collateral assigned to position

• Position PnL: Individual position profit/loss

• Maintenance Margin: Minimum required for this position only

Position Independence:

Position A: 250% ratio (healthy)
Position B: 95% ratio (liquidates independently)
Position C: 300% ratio (unaffected by Position B)

Result: Only Position B closes, others continue

Thresholds:

• Position opening: ~150% minimum

• Margin transfers: ~150% must remain

• Liquidation: ~100% triggers individual position closure

Liquidation: Only the specific under-margined position closes.

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Leverage Mechanics

Both systems support high leverage on select instruments, with maintenance requirements varying by asset volatility and liquidity.

Cross Margin:

Effective Leverage = Total Position Notional / Total Portfolio Margin

Example:
Portfolio margin: $25,000
Total positions: $625,000 notional
Effective leverage: 25x

A 1% market move = 25% portfolio change

Isolated Margin:

Position Leverage = Position Notional / Allocated Position Margin

Example:
Position A: $125,000 notional, $5,000 allocated = 25x
Position B: $30,000 notional, $3,000 allocated = 10x
Position C: $20,000 notional, $10,000 allocated = 2x

Each position's leverage independent

Maintenance Requirements by Instrument:

BTC, ETH (Highest liquidity):
Lower maintenance requirements
Higher leverage available

Large-cap alts:
Moderate maintenance requirements
Moderate leverage available

Mid/small-cap alts:
Higher maintenance requirements
Lower leverage available

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Risk Profiles

Cross Margin Risk

Advantages:

• Maximum capital utilization

• Natural hedging between positions

• Lower total collateral requirements

• Flexibility to add positions

Risks:

• One bad position can liquidate entire portfolio

• Complex portfolio-level monitoring required

• Harder to isolate specific strategy performance

• Cascade risk in extreme volatility

Example Scenario:

Portfolio: 5 positions, 10x average leverage
Position 1: -15% (losing $15k on $100k notional)
Positions 2-5: Flat or small gains

If Position 1 loss pushes portfolio ratio below 100%:
→ All 5 positions liquidate together
→ Even profitable positions close
→ Total portfolio impact, not isolated loss

Isolated Margin Risk

Advantages:

• Clear per-position risk definition

• Liquidation limited to individual positions

• Easier risk management and monitoring

• Protected testing of new strategies

Risks:

• Lower capital efficiency

• Higher total collateral requirements

• Cannot leverage profits to support other positions

• More fragmented capital allocation

Example Scenario:

Position A: 25x leverage, high conviction BTC long
Allocated: $4,000 margin
Notional: $100,000

Market drops 4%:
Position loses $4,000 (100% of allocated margin)
Position A liquidates

Other positions completely unaffected
No cascade or contagion