Margin Model

The protocol uses an isolated margin model. Each position has independent collateral that determines leverage, liquidation threshold, and maximum loss. Margin rates are snapshotted at position open time.

Position Equity

equity = lockedMargin + unrealizedPnL

Parameter	Type	Description
lockedMargin	Onchain: stored in Position struct	USDC collateral locked for this position (mutable via margin adjustments)
unrealizedPnL	Computed: derived from current forward price	Mark-to-market profit or loss (signed)

Condition	Status
`equity >= lockedMargin`	Healthy — profitable or breakeven
`MM <= equity < lockedMargin`	Underwater — losses but not liquidatable
`equity < MM`	Liquidatable — anyone can close the position
`equity <= 0`	Bad debt — losses exceed margin, pool absorbs the rest

Two Margin Levels

Every position has two thresholds that create a buffer zone between opening and liquidation.

minIM = notional × imFactorBps / BPS_DENOMINATOR
mmThreshold = notional × mmFactorBps / BPS_DENOMINATOR

Parameter	Default	Description
imFactorBps	200 bps (2%)	Minimum collateral to open. Onchain: stored in Config
mmFactorBps	100 bps (1%)	Liquidation threshold. Onchain: stored in Config
BPS_DENOMINATOR	10,000	Fixed constant

The protocol enforces imFactorBps > mmFactorBps — any attempt to violate this reverts. This gap creates the buffer: equity starts above IM and must erode through the buffer before liquidation.

|---- Notional (100%) ----|
|-- IM (2%) --|
|- MM (1%) -|
              ^            ^
              |            |
        Liquidation    Position
         threshold      opens here

For current parameter values, see Margin Requirements.

Variable Leverage

Traders choose their own margin within [minIM, notional]. More margin means lower leverage and a larger liquidation buffer.

Margin	Leverage	Buffer Before Liquidation	Best For
2% (minimum)	50x	~1% adverse move	High-conviction short-term trades
5%	20x	~4% adverse move	Active trading with moderate risk
10%	10x	~9% adverse move	Balanced risk/reward
20%	5x	~19% adverse move	Conservative positions, longer tenors
100%	1x	Cannot be liquidated	Full hedging, maximum safety

Isolated Margin

Each position’s margin is completely independent:

A loss on Position A does not affect Position B
Maximum loss per position is capped at that position’s locked margin
Free collateral in your account is never at risk from open positions
Liquidation of one position does not affect others

Isolated vs cross margin

In a cross-margin system, all positions share a common margin pool. A loss on one position can drain margin from others, and the entire account balance is at risk.The protocol defines a MarginMode enum with ISOLATED (0) and CROSS (1) values, but only isolated margin is implemented in M2. The isolated model provides clearer risk boundaries and prevents cascading failures.

Margin Operations

Add Margin

Increases locked margin, reducing leverage and increasing the liquidation buffer.

Allowed at any time, even when liquidatable (rescue mechanism)
Total locked margin cannot exceed notional
Amount transfers from free collateral

Remove Margin

Decreases locked margin, increasing leverage and freeing collateral.

Not allowed when liquidatable
Remaining margin must stay above minIM
Equity after removal must stay above MM threshold

Snapshotted Rates

When a position is opened, margin configuration parameters are snapshotted and stored with the position:

Snapshotted Field	Description
snapshotImBps	Initial margin factor at time of open
snapshotMmBps	Maintenance margin factor at time of open
snapshotTradingFeeBps	Trading fee rate at time of open
snapshotLiquidationPenaltyBps	Liquidation penalty at time of open
snapshotOracleFee	Oracle fee at time of open

Admin configuration changes only affect newly opened positions. Existing positions retain the parameters they were opened with — no admin action can retroactively move the liquidation threshold.

Worked Example

Full margin lifecycle

Setup:

Notional: 1,000 USDC
Margin deposited: 50 USDC (5%, 20x leverage)
Minimum IM: 20 USDC (2%)
MM threshold: 10 USDC (1%)

After -30 USDC unrealized PnL:

Locked margin: 50 USDC
Equity: 50 + (-30) = 20 USDC
Status: underwater but above MM (20 > 10)

Add 25 USDC margin:

Locked margin: 75 USDC
Equity: 75 + (-30) = 45 USDC
Leverage: 1,000 / 75 = 13.3x (safer)

Price recovers, PnL now +15 USDC:

Locked margin: 75 USDC
Equity: 75 + 15 = 90 USDC

Remove 30 USDC margin:

Locked margin: 45 USDC (45 >= 20 min IM — allowed)
Equity: 45 + 15 = 60 USDC (60 >= 10 MM — allowed)
Leverage: 1,000 / 45 = 22.2x

What happens if PnL loss exceeds locked margin?

When a position’s market PnL loss exceeds its locked margin (|marketPnl| > imLocked), the excess becomes bad debt. The trader’s realized loss is capped at imLocked, and the remaining loss is absorbed by pool equity. A BadDebt event is emitted for monitoring. The pool equity floor is clamped to zero — it cannot go negative.

Account Equity

Beyond individual positions, the protocol tracks aggregate account equity:

accountEquity = collateralBalance + aggregateUnrealizedPnL

Computed: aggregateUnrealizedPnL sums unrealized PnL across all open positions. Available via the subgraph for informational purposes.

Overview

FX Forwards

Roadmap

Position Equity

Two Margin Levels

Variable Leverage

Isolated Margin

Margin Operations

Add Margin

Remove Margin

Snapshotted Rates

Worked Example

Account Equity

​Position Equity

​Two Margin Levels

​Variable Leverage

​Isolated Margin

​Margin Operations

Add Margin

Remove Margin

​Snapshotted Rates

​Worked Example

​Account Equity

Position Equity

Two Margin Levels

Variable Leverage

Isolated Margin

Margin Operations

Snapshotted Rates

Worked Example

Account Equity