Margin Requirements

Clarifies how the trading system handles margin

Risk management is handled through liquidations. The current implementation uses direct liquidation orders rather than a separate insurance fund or ADL mechanism.

Margin Requirements

Two margin thresholds exist per market:

Margin Type	Purpose	Typical Ratio
Initial	Required to open positions	10% (1000 bps)
Maintenance	Minimum to avoid liquidation	5% (500 bps)

Margin requirements are calculated as:

required = notional * margin_ratio / 10,000
notional = abs(base_position) * mark_price

Tiered Leverage

Large positions face higher margin requirements:

LeverageTier {
    notional: u64,              // Position size threshold
    initial_margin_ratio: u64,
    maintenance_margin_ratio: u64,
}

When position notional exceeds a tier threshold, the higher ratios apply.

Liquidation Detection

Accounts are checked against maintenance margin:

equity = collateral + sum(unrealized_pnl)
liquidatable = equity < maintenance_margin + reserved_margin

Where:

• unrealized_pnl = base_position * mark_price - quote_spent

• reserved_margin = margin locked for open orders

Liquidation Order Generation

For each under-margined account:

for position in account.positions:
    if position.base_position != 0:
        order = Order {
            order_id: LIQUIDATION_ORDER_START + counter,  // Bit 63 set
            side: opposite(position.direction),
            price: mark_price,
            quantity: abs(base_position),
        }

Liquidation orders:

• Have order IDs starting at 1 << 63 (bit 63 set) for identification

• Are priced at current mark price

• Close the entire position

• Process through the normal matching engine

Position Lifecycle

Trades affect positions in three ways:

Effect	Condition	Behavior
Opening	No position or same direction	Increases base_position, adds to quote_spent
Reducing	Opposite direction, partial close	Decreases position, realizes PnL
Flipping	Opposite direction, exceeds position	Closes position, opens opposite side

Realized PnL calculation on close:

pnl_per_unit = exit_price - entry_price  // for longs
pnl_per_unit = entry_price - exit_price  // for shorts
realized = pnl_per_unit * quantity_closed

Reserved Margin

Margin is reserved when orders are placed and released when filled:

// On order placement
reserve_margin_for_order(account, market, price, quantity)

// On fill
release_margin_reservation(account, required_initial_margin(notional))

This prevents over-commitment of margin to multiple orders.