Detailed Calculations on Margin and Liquidations

Initial Margin (IM)

• Overview: Initial Margin is the margin a user needs to open a new position

• Variables:

  • kIM: Initial Margin Factor, a setting specific to each market

  • s: Notional Size

  • t: Time to maturity (in years)

  • TimeFloor: floor for time to maturity, a setting specific to each market

  • RateFloor: floor for Mark Rate, a setting specific to each market

• Formula:

$$IM = k_{IM} \times |s| \times max(t, TimeFloor) \times max(markRate, RateFloor)$$

• A user is able to open a new limit order or market order, if their total Initial Margin is less than their Net Balance, or they are closing their existing position

Maintenance Margin (MM)

• Overview: Maintenance Margin is the margin a user needs to have to maintain a position (and not be liquidated)

• Variables:

  • kMM: Maintenance Margin Factor, a setting specific to each market

  • s: Notional Size

  • t: Time to maturity (in years)

  • TimeFloor: floor for time to maturity, a setting specific to each market

  • RateFloor: floor for Mark Rate, a setting specific to each market

• Formula:

$$MM = k_{MM} \times |s| \times max(t, TimeFloor) \times max(markRate, RateFloor)$$

• To get the settings from the API:

  • API: https://api.boros.finance/core/docs#/Markets/MarketsController_getMarketInfo

  • Notes on how to get settings from the API:

    • TimeFloor: tThresh from the API, divided by 365*24*3600

    • RateFloor:

      • 1.00005^(iTickThresh*tickStep) - 1

Liquidation

• Overview: a user is liquidated in a collateral zone if their Net Balance goes below Maintenance Margin

• When a liquidation happens, the user’s position is closed at the mark rate, and the user loses an liquidation penalty of:

$$LiquidationPenalty = k * maintenanceMarginOfLiquidatedPosition$$

• Where k will start from 25% when a position just become liquidate-able and increases linearly to 50% when the position becomes more and more unhealthy (and still not liquidated)