Understanding margin and margin requirements

Under BPM, it's crucial to understand two key figures: your Margin and your Margin Requirement.

Margin and Margin Requirement are computed at a sub-account level.

For your sub-account to remain in good standing, your Margin must always be greater than your Margin Requirement.

What is Margin?

Margin is the total equity value of your sub-account, which serves as your collateral. It's calculated for each asset in your account and then summed up. The formula for each asset is:

Open

Collateral: The USD value of your spot assets, with haircuts applied based on asset type and notional value.

• Unsettled PnL: Bullish uses Futures Style Margining (FSM) for all derivatives, including options. This means profits and losses are marked-to-market and settled in USDC every hour. The Unsettled PnL is the current mark-to-market value change since the last hourly settlement.

• Liabilities: The USD value of any assets you have borrowed.

What is Margin Requirement (MR)?

The Margin Requirement (MR) is the amount of Margin you are required to maintain to support your open positions. It is calculated by subjecting your portfolio to a wide range of stress-test scenarios to find the maximum potential loss.

MR is computed at a sub account level

The MR for each asset group in your portfolio consists of two primary components:

1. Market Risk: This represents the potential loss your portfolio could face from market movements (e.g., changes in price and volatility). Even a perfectly hedged portfolio will have a minimum market risk requirement, known as the Market Risk Floor (MRF), to account for the fact that hedges are never perfect.

2. Liquidity Risk: This represents the additional cost that could be incurred when closing or delta-hedging your positions during liquidation. It is calculated as the minimum of a Liquidation Add-On (cost of closing positions directly) and a Hedging Add-On (cost of delta-hedging the portfolio).

Your sub-account's total Margin Requirement is the sum of the Market Risk and Liquidity Risk calculated for every asset group in your portfolio.