Cross collateral specifications

Each tradeable derivative instrument on Deribit has a settlement currency. The settlement currency is what is used to receive/pay any profit/loss from trading the instrument, and so the margin requirements for the instrument are also calculated in this settlement currency.

Cross collateral allows currencies other than the settlement currency to be used to satisfy the margin requirements of a particular instrument.

The currencies that can be used as collateral to trade products with a different settlement currency are called cross collateral currencies. With cross collateral enabled, these currencies can be used as margin for any derivative instrument on Deribit.

An offset currency can be used to offset upside risk only in products for the respective currency. For example, a BNB balance can be used to offset upside risk in BNB products. For a short BNB call position for instance, it will start making losses if the price of BNB increases. However, any BNB holdings will increase in value as the price increases, and so the margin system will use this BNB balance to offset some of the risk.

The main use for the offset currencies is to better facilitate positions such as covered calls, and short futures positions.

For the purposes of calculating the initial margin (IM), some cross collateral currencies may have a haircut applied. The rate of the haircut will depend on the currency being used as collateral. It is possible for the haircut rate for a currency to be zero.

The purpose of the haircuts is to make the cross collateral system safer by holding a little extra margin for some cross collateral currencies. This is achieved by reserving a certain percentage (the relevant haircut percentage) of some currencies as initial margin.

For example, if a currency has a 2% haircut in the cross collateral system, 98% of the equity in that currency can still be used as margin for derivatives positions, and 2% will be reserved for the haircut.

Haircut rates can be seen on the margin page in your account. For portfolio margin accounts this information will be on the portfolio margin page, and for standard margin accounts this information will be on the standard margin page.

When cross collateral is enabled, it is possible for the equity of a particular settlement currency to go negative, while the account as a whole remains solvent. There are two limits to how large a negative equity in a particular currency can go. There is an absolute limit, and a relative limit. The absolute limit is a fixed value chosen by the Deribit risk department, and the relative limit is a percentage of the cross equity. Once either limit is breached, Deribit will rebalance the account by using one of the currencies in the account with a positive equity to purchase some of the currency with a negative equity, according to the minimum rebalancing amount. If a rebalancing is required but the value of the assets is below the minimum rebalancing amount, the whole available amount will be rebalanced.

Account rebalancing is a separate process from liquidation. Even a healthy account with sufficient maintenance margin may require account rebalancing if the equity of a particular settlement currency is sufficiently negative. Account rebalancing will only rebalance the currencies held in the account. Positions in derivatives instruments (e.g. options, futures, perpetuals) will not be liquidated during this process.

There are no additional fees associated with rebalancing, and the spot markets used for exchanging between currencies also have zero fees.

While the equity of a currency in an account remains negative, a collateral fee will be charged to that account. This fee is charged daily in the same currency as the negative equity. The default amount is 0.05% of the negative amount per day.

To avoid paying collateral fees, a trader may replenish the currency that has the negative equity themselves instead. Indeed the main role of the collateral fees is to encourage traders to stay on top of any required rebalancing themselves. Traders can do this by either depositing more of the currency that has a negative equity or by swapping between currencies via the spot markets.

For cross collateral portfolio margin (X:PM) accounts, the margin balance is calculated as follows:

Margin Balance in BTC settlement currency = BTC Equity + BTC equivalent value of the Equity in other Cross Collateral Currencies (e.g. ETH, USDC, USDT, stETH)

For cross collateral standard margin (X:SM) accounts, the margin balance is calculated as follows:

Margin Balance in BTC settlement currency = BTC Equity + BTC equivalent value of the Equity in other Cross Collateral Currencies (e.g. ETH, USDC, USDT, stETH)  - BTC equivalent value of the options in the account

This calculation is made for each settlement currency, so it is possible to see the margin balance expressed in any of the settlement currencies. BTC has been used as the settlement currency for these formulas, but the same process is followed for each of the other settlement currencies as well.

If a trader prefers, they can look at the Total USD values for Margin Balance and Maintenance Margin. This information is displayed in the Account Summary component for example.

For accounts set to cross portfolio margin (X:PM), even when there are no derivatives positions open in the account, the margin numbers may not be zero.

This does not mean that simply holding a balance on a cross PM account could result in the account being liquidated. And it does not affect your ability to withdraw the funds when there is no derivative position. It is simply a result of all balances being converted to dollars for the purpose of margin calculations. The spot holdings are also an entry in the risk matrix.

As always, liquidations will only happen if derivative positions are held, and maintenance margin requirements subsequently surpass 100%.