Margin Types & Collateral
What & what?
Margin types and collateral are key components of trading on the Synthetix Exchange. Understanding these concepts is essential for managing risk, optimizing capital efficiency, and improving trading performance.
Cross-Margining: Maximizing Capital Efficiency
Cross-margining allows traders to leverage the total value of their account as collateral for multiple positions simultaneously. Instead of treating each trade individually, your entire portfolio acts as a unified source of collateral, which significantly enhances capital efficiency.
This approach reduces the likelihood of forced liquidations on individual trades and minimizes margin requirements, as profits from one position can offset losses in another. However, traders should be cautious: if the overall account balance falls below the required margin, the entire account is subject to liquidation.
In the future, isolated positions will be available to provide flexibility to traders.
Margin Types
Cross-Margin
Pools liabilities from multiple positions in an account.
Balances margins across positions, reducing the overall margin needed.
Helps prevent liquidations on isolated trades by using profits from other positions as a buffer.
Simplifies account management by consolidating all margins into a single balance.
Traders should note that liquidations now are no longer isolated to single positions but the account in its entirety!
Isolated Margin
Limits the liability of each trade to its own initial margin.
Keeps risk confined to a specific position, preventing it from impacting the rest of the account.
Currently unavailable on Synthetix Exchange v3, but planned for future updates. Isolated margin is only enabled for V2 Legacy Perps.
Cross margin, also known as "portfolio margining," offers several benefits for traders, particularly in the realms of risk management, capital efficiency, and trading flexibility. Here are some of the key advantages:
Enhanced Capital Efficiency: Cross margin allows traders to use the entire balance of their account as collateral for their open positions. This means that profits from one position can be used to cover losses in another, maximizing the use of capital without the need to allocate specific funds to individual trades.
Reduced Margin Calls: By pooling the collateral across all positions, traders can reduce the likelihood of receiving a margin call for a specific position, as excess margin from winning positions can compensate for losing ones. This integrated approach can provide a buffer against market volatility.
Improved Risk Management: Cross margining facilitates better risk management by enabling a more holistic view of exposure across all trades. Traders can more effectively hedge their positions and manage risk on a portfolio level, rather than managing risk in isolation for each trade.
Simplified Account Management: Managing one consolidated margin balance is simpler than monitoring separate margins for individual positions. This simplicity can save time and reduce the administrative burden, allowing traders to focus more on strategy and less on account management.v
What happened to sUSD?
In v2, sUSD was the decentralized stablecoin used for trading. In v3, this process has been streamlined. While v3 still uses a synthetic USD for accounting purposes, all deposits and withdrawals are processed through a wrapper. This means traders can now deposit and withdraw USDC on a 1:1 basis, enabling seamless integration with other collateral types and simplifying fund management.
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