🧵Universal Cross Margin

Vertex is cross-margined by default, meaning a user’s trading account consolidates liabilities to offset the margin between positions. A user’s portfolio subsequently serves as collateral across multiple open positions.

On Vertex, your portfolio is your margin.

Universally cross-margined trading accounts are uncommon in DeFi. As a result, it’s important to contrast two specific forms of margin:

• Isolated Margin

• Cross-Margin

Isolated Margin = An account’s liability is limited to the initial margin posted to a single position.

Cross-Margin = Multiple positions’ liabilities are shared across an account to offset the margin between the positions.

Isolated Margin

Isolated margin is often used for volatile, speculative positions and limits a user’s account balance risk. Isolated margin is popular for perpetuals trading on both DEXs and CEXs.

For example:

• Alice has 20K USDC on Binance.

• Alice opens a $BTC perp position worth $50K on 10X leverage using 5K of her USDC as collateral.

• Alice’s position is liquidated.

• Only the 5K USDC initial margin is at risk of loss. Her remaining 15K USDC is unaffected.

While initially unavailable on Vertex V1, isolated margin for perpetuals will be added as a feature for users in Vertex V2.

Cross-Margin

Cross-margining enables users to reduce margin requirements by calculating the portfolio’s overall risk across multiple positions. Open positions share capital toward each position’s margin requirements – reducing the risk of single-position liquidations while requiring a lower initial margin for each position.

Cross-margining is popular in TradFi and available on many CEXs, but its scope is limited in DeFi.

On Vertex, you can utilize all your funds—deposits, positions, and PnL— toward your margin.

This means your open positions across spot, perpetuals, and the money market (e.g., spot borrowing) contribute to your account’s portfolio margin.

Users can trade more flexibly and efficiently as the risk of margin calls and forced liquidations for single positions declines.

Vertex's cross-margin design also allows for portfolio margining. Similar to regular cross-margin, portfolio margining is where unrealized profits can be used to offset unrealized losses or deployed as margin for existing positions or for opening new positions. All of the relevant balancings of a portfolio's margin are calculated automatically on the Vertex back-end and displayed intuitively as a trading account’s portfolio health on the Vertex app.

Universally cross-margined trading accounts can be beneficial for both sophisticated and retail traders for several reasons, including:

Lower Margin Requirements: Cross-margined accounts typically have lower margin requirements than traders opening the same positions in separate, isolated margin accounts.

Example: A Vertex trader with a long position in spot margin $ETH and a short position in $ETH perpetuals may have a lower cumulative margin requirement than a trader with the same position in isolated margin accounts.

Automatic Risk Management: Vertex enables traders to avoid liquidations by automatically calculating and transferring margin between open positions to maintain the required margin levels. This is useful for traders in volatile market conditions and when trading complex strategies.

Example: A trader on Vertex can open a long $ETH spot position alongside a short $wBTC perp position without manually transferring margin between the accounts to maintain the required margin levels – it’s performed automatically and displayed on the portfolio page.

Risk/Reward Optimization: Traders can adjust the leverage of their positions across multiple positions to suit their individual risk preferences – it’s more capital-efficient.

Example: Alice can maintain a highly leveraged long position in $wBTC and a lower leverage short position in $ETH, achieving a better risk-reward ratio than a trader with the same positions in isolated margin accounts. This is because Alice can set a higher margin requirement for a highly leveraged long perpetual position and a lower margin requirement for a lower leverage short perpetual position on Vertex.

Portfolio Margining: A specific type of cross-margining, portfolio margining, is when unrealized profits from an open position can be used to offset the margin requirements of another position.

Example: If the value of Alice’s long $ETH spot margin position on Vertex falls, the excess margin (e.g., unrealized profits) in Alice’s short $ETH perp position may be used to maintain the required margin level, avoiding liquidation of the long spot margin position.

Simplified Account Management: Overall portfolio health and risk indicators are easily accessible in a single interface – the Portfolio Overview. Trading with multiple open positions is streamlined as Vertex’s trading accounts offer a sweeping view of traders’ overall risk, where all their open positions are linked and managed together.

For an exhaustive walkthrough of navigating across your cross-margined portfolio and various spot, perpetual, and money market (e.g., spot borrowing) positions on Vertex, please refer to the Tutorials Section.

For precise attributes of the technical terminology related to your cross-margined trading account, including Account Value, Unsettled USDC, Initial Margin, and more, please refer to the Vertex Glossary.

Managing Portfolio Risk

Managing your portfolio on Vertex is simplified with a sweeping view of your cross-margined trading account. The Vertex app supplements the clarity of the portfolio overview page with specific risk tiers, intuitively alerting users to fluctuations in the weighted value of their portfolio’s Health.

Health is the amount of capital (quoted in USD) your account has to trade with before it can be liquidated.

You can think of Health as your Weighted Margin / Risk. You have two different kinds:

1. Maintenance

2. Initial

Your Health is determined by giving each balance and position a Weighted Value. Initial health is weighted greater for shorts and less for longs when compared to Maintenance.

For more details on weighting, please refer to the section on Health Calculations. Once all of your Initial Health is depleted, your account goes into Maintenance Mode, which means no more risk can be taken – such as opening new positions.

The remaining Maintenance Health acts as a buffer for the user to de-risk before jeopardizing liquidation. Once all of the Maintenance Health is used, your account can be liquidated.

On Vertex, calculations of Weighted Value (e.g., portfolio health) are performed automatically on the back end and reflected in a user’s portfolio overview page on the Vertex app interface as the portfolio’s Health.

Different tiers of portfolio risk are classified and displayed visually within the “Health Battery” of the portfolio page based on the following parameters:

• Low Risk – Your portfolio health is defined as low-risk with the flexibility to open new positions without incurring excessive risk.

  • Health Bar Status = 40 - 100% (Left to Right)

  • Initial Margin Usage = 0.00 → 66.66%

• Medium Risk – This account state doesn’t come with any major warnings, and it’s a gauge of your Initial Health. Medium-risk occurs when:

  • Health Bar Status = 20 - 40% (Left to Right)

  • Initial Margin Usage = 66.66 → 88.88%

• High Risk – Comprises the next 10% of the Health Bar after Extreme Risk. You can still enter new positions at this point, but it’s a warning to be cautious.

  • Health Bar Status = 10 - 20% (Left to Right)

  • Initial Margin Usage = 88.88 → 99.99%

• Extreme Risk – Also known as Maintenance Mode, Extreme Risk means your Initial Health is less than 0 USD, and you can’t take on any more risk. During Extreme Risk, you must de-risk by depositing more funds or closing positions. If you don’t do so quickly, you risk liquidation.

  • Health Bar Status = 0 - 10% (Left to Right)

  • Initial Margin Usage = >100%

The tiers of portfolio risk will automatically reflect dynamic market conditions in real-time across an account’s open positions.

Users are encouraged to be mindful of the current portfolio state of their trading account on Vertex. Markets are unpredictable, and proper risk management necessitates concerted attention to your portfolio’s risk tiers.

The trading interface will notify users when their accounts reach higher levels of risk, prompting them to deposit more assets into Vertex to reduce their overall portfolio risk or close open positions.

Cross-Margin Trade Strategy Example – Basis Trades

The advantages of universal cross-margin on Vertex can be expressed further by examining a popular trade strategy within crypto markets – the basis trade.

Basis trades are a common trade strategy where traders typically capture the spread between two products:

1. Spot

2. Futures

The spread (i.e., the “basis”) is the difference between the spot and futures price.

The spot and futures prices eventually converge at maturity, and the profit is the difference between the initial prices minus fees. It’s a classic amongst derivatives traders in both TradFi and DeFi, expressed most often with spot and futures products.

Perpetual swaps are the most popular futures product in crypto.

With no expiration, they maintain price parity with the underlying spot asset via funding rates where interest is paid on open positions relative to the difference between the perpetual and indexed spot prices. Spot and perp prices don’t necessarily have to converge completely and can deviate for extended periods.

Comparatively, the expiration date of vanilla futures contracts is the primary force converging futures with spot prices as the expiry approaches.

Crypto basis trades with perpetuals, and spot assets are popular since the perpetuals price typically trades at a premium to spot prices – meaning basis trades of long spot/short perp are typically profitable and delta neutral positions. However, basis trades are more capital-intensive on many exchanges than Vertex since they usually require two separate markets for the perpetual and spot positions.

With linked spot and perpetual markets, Vertex will provide traders with native markets for basis trading.

For example, If Alice is long ETH spot on Binance and short an ETH perpetual contract on isolated margin, her open perpetual contract is treated as a standalone position. Alice is responsible for maintaining the full margin requirement – even if she has an offsetting spot ETH position.

As a result, arbitrage becomes unnecessarily capital inefficient.

On Vertex, cross-margining with linked spot and perpetual markets ameliorates the arbitrage inefficiency of basis trading while allowing traders to offload residual risk with minimal friction.

Since Vertex’s on-chain risk engine recognizes the redundancy of requiring the full margin amount for the ETH perpetual position in the example of Alice above, the margin requirement for the ETH perpetual is substantially reduced – allowing for more capital-efficient trading.

Vertex’s embedded money market also allows assets to be used as both collateral and available for borrowing to leverage spot positions. As a result, the basis rate is more closely tethered to the borrowing rate of stables and tokens.

Profitable arbitrage conditions arise when basis returns > borrowing costs.

Advantageous arbitrage conditions on Vertex generate a compounding effect of greater volumes and improved liquidity since traders can execute profitable basis trade strategies on Vertex with leverage and lower margin requirements.

Take advantage of portfolio margining. Manage one universal margin account comprising all your balances and positions to maximize capital efficiency— no more switching between accounts.