Spot Margin Requirements vs Haircuts
Key Concepts
Margin Requirement (IM) — The amount of margin reserved against an open position. This reduces your available (excess) margin but does not reduce your total margin balance.
Haircut — A percentage reduction applied to the collateral value of an asset. This directly reduces your total margin balance rather than reserving margin against a position.
Excess Margin — The margin available after all requirements are met. This determines your capacity to open new positions. Calculated as:
Excess Margin = Total Margin - Initial Margin Requirements.Market Risk Floor (MRF) — The minimum margin requirement for a portfolio of offsetting positions. Even when positions hedge each other, a floor is applied to account for residual market risk that cannot be fully eliminated.
How Each Approach Works
Approach 1: Spot Margin Requirement (Bullish's Approach)
Spot positions carry a margin requirement, just like perpetual positions. Your total margin balance is not reduced — instead, margin is reserved against the spot position.
Approach 2: Haircut on Collateral
Spot positions carry no margin requirement, but a haircut is applied to your collateral value, directly reducing your total margin balance.
Comparing the Two Approaches
Scenario 1: Long Spot + Long Perpetual
Assume a total margin balance of 100, a spot IM of 10, and a perpetual IM of 10.
| Margin Requirement Approach | Haircut Approach |
|---|---|---|
Spot IM | 10 | 0 |
Perpetual IM | 10 | 10 |
Total Margin | 100 (no haircut) | 90 (100 - 10 haircut) |
Excess Margin | 100 - 10 - 10 = 80 | 90 - 10 = 80 |
Result: Both approaches produce the same excess margin of 80. No difference for directional positions.
Scenario 2: Long Spot + Short Perpetual (Hedged Position)
Assume a total margin balance of 100. Under the margin requirement approach, the offsetting positions are recognised and the combined margin requirement is reduced to the Market Risk Floor (MRF) of 3.
| Margin Requirement Approach | Haircut Approach |
|---|---|---|
Combined IM (MRF) | 3 | N/A |
Spot IM | — | 0 |
Perpetual IM | — | 10 |
Total Margin | 100 (no haircut) | 90 (100 - 10 haircut) |
Excess Margin | 100 - 3 = 97 | 90 - 10 = 80 |
Result: The margin requirement approach produces an excess margin of 97 vs. 80 under the haircut approach — a significant difference of 17.
Why Bullish Uses Margin Requirements for Spot
The margin requirement approach is more capital efficient, particularly for hedged positions. When a long spot position offsets a short perpetual, Bullish recognises the reduced risk through the Market Risk Floor, lowering the combined margin requirement. Under a haircut approach, the collateral reduction is applied regardless of whether the position is hedged, resulting in less available margin.
This means traders with hedged strategies retain more excess margin to deploy across their portfolio.