Portfolio Margin
For Portfolio Margin, PowerTrade uses the SPAN Margin method, there are some choices to be made in terms of methodology and parameters when bumping implied volatility. These choices impact the scenarios which are considered in order to assess the health risk and hence liquidation of a client's portfolio.
Methodology
The Margin requirement is computed periodically using real-time data. At 100 ms intervals the margin engine samples spot, futures, perpetuals and options mark prices.
An implied volatility surface is generated for each pair where options are supported, using observed options marks, spot marks and funding costs.
For each pair, a theoretical PV is computed for all positions that have this pair as the underlying currency. This includes spot, futures, perpetuals and options. The PV is computed in terms of USD.
For each currency pair, the inventory of non-USD coins in the customer’s wallet is treated as USD converted at the current mark price . In this way, non-USD currencies are considered as margin cover in USD.
The PV of each currency-pair set is computed for each of nine scenarios, where inputs are the Spot Shock Factor (SSF) and Volatility Shock Factor (VSF)
Configurable Parameters
The input parameters are:
Spot Shock Factor (SSF)
Volatility Shock Factor (VSF)
Definitions
SSF - Spot Shock Factor, configurable per asset and account,
the default value = 0.15;
VSF - Volatility Shock Factor, configurable per asset and account,
the default value = 0.40 x (45 / days till expiry)^0.3;
IV - Implied Volatility for a given tenor and moneyness
SRI - Spot Rate Input
Parameters may be modified from time to time in response to adverse market conditions. However, the baseline parameters are as follows:
SSF
15%
15%
15%
15%
VSF
40%
40%
40%
40%
PowerTrade can change the risk settings without prior notice.
Portfolio Scenarios
The margin engine calculates 9 scenarios to calculate the margin requirement.
1
max(0, Spot Mark * (1 + SSF))
max(0, IV * (1 + VSF))
2
max(0, Spot Mark * (1 + SSF)
IV
3
max(0, Spot Mark * (1 + SSF)
max(0, IV * (1 - VSF))
4
Spot Mark
max(0, IV * (1 + VSF))
5
Spot Mark
IV
6
Spot Mark
max(0, IV * (1 - VSF))
7
max(0, Spot Mark * (1 - SSF))
max(0, IV * (1 + VSF))
8
max(0, Spot Mark * (1 - SSF))
IV
9
max(0, Spot Mark * (1 - SSF))
max(0, IV * (1 - VSF))
Note that both the volatility shock and the spot shock are additive.
Once the nine PVs are computed, the scenario with the lowest PV is selected.
This process is repeated for each currency pair and the resulting PV of each selected scenario is accumulated.
The margin requirement is the difference between the accumulated scenario PV and the accumulated PV of the un-shocked portfolio. Margin requirement is always stated in USD.
The margin system has the capability to set a correlation between currency pairs. At the present time, this capability is not enabled.
Main Account / Sub Accounts Margin
The PowerTrade Margin engine calculates the margin required for each (sub)account.
Clients can benefit from a margin offset by trading, futures and options contracts in the same (sub)account. Different positions in sub-accounts will be margined separately.
Testnet
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