Isolated Margin vs Portfolio Margin in Crypto Options

Kyan (Premia V4) will launch with portfolio margin for all accounts, in addition to options, perps, and combo trades. Isolated margin will be introduced soon after Kyan’s launch as an alternative to portfolio margin.

Portfolio margin and isolated margin differ in how they calculate your margin requirements. With portfolio margin, the system looks at your entire account as one, evaluating how all your positions would perform together under different market conditions. This often results in lower margin requirements since offsetting positions like hedges or multi-leg options are recognized as reducing overall risk.

Isolated margin calculates each position's requirements separately and simply adds them together, which means even if you have positions that hedge each other, they won't, and you'll need to meet the full margin requirement for each position independently. While isolated margin is simpler to understand, it typically requires more capital, especially for multi-leg strategies. Isolated margin is generally best for beginners and people who just want to directionally purchase options.

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TL;DR:

• Portfolio margin calculates margin requirements based on the combined risk of all positions within a margin account on Kyan.

• Isolated margin calculates risk for each position separately. Isolated margin allows traders to manage risk by allocating margin independently to each position.

• Kyan will launch with portfolio margin available by default for all accounts. Isolated margin is a priority on the Kyan roadmap, and will be available soon after the initial launch.

Initial Margin & Maintenance Margin

There are two key margin concepts to understand:

1. Initial Margin (IM) is the amount needed to open a position. When you've used all your initial margin (your IMr reaches 100%+), you can't open new positions.

2. Maintenance Margin (MM) is what's needed to keep your positions open. This is always lower than initial margin. If your account doesn't have enough to meet maintenance margin requirements, the risk engine will begin liquidating your positions.

Stay tuned for an article describing Kyan’s risk engine and liquidation mechanics in more detail.

What is Portfolio Margin in Crypto Options?

Portfolio margin evaluates risk across your portfolio as a whole. Instead of calculating margin requirements for each position separately, the system tests your entire portfolio against various scenarios. The scenario that would cause the largest loss determines your margin requirements. Portfolio margin on Kyan works best for:

• Multi-leg option trades

• Portfolio management

• Hedging strategies

While portfolio margin involves more complex calculations, it provides significant benefits:

1. More efficient use of capital

2. Recognition of hedged positions

3. Optimized margin requirements for multi-leg strategies

When to Use Portfolio Margin for Crypto Options Trading

Portfolio margin is particularly effective with positions that balance each other out. Here are some ideal use cases:

• Multi-leg strategies

• Opposing perps positions

• Combined perps and options positions

• Delta hedging

For example, consider a butterfly spread with these options:

• Buy 1 BTC-90,000-C

• Sell 2 BTC-100,000-C

• Buy 1 BTC-110,000-C

With Portfolio Margin, your margin requirements will be optimized and much lower compared to Isolated Margin, because the system recognizes how the positions offset each other. Depending on account balance, you may not even be able to put on this trade with Isolated Margin, as your IM and MM will be too high.

Why is My Margin Lower on Portfolio Margin?

The potential losses from selling the 100,000 BTC calls are limited by the purchased protective wings (90,000 and 110,000 calls), resulting in efficient margin allocation.

Delta hedging is another excellent use case for portfolio margin, as it recognizes the risk reduction from offsetting positions.

Buying Options on Portfolio Margin

When buying options with portfolio margin, you might not need to commit the whole premium upfront. While this provides better capital efficiency, it also introduces leverage to your position and potential liquidation risk. Traders should be mindful of this when planning positions.

What is Isolated Margin in Crypto Options?

Soon after launch, Kyan will introduce isolated margin as an alternative option. With isolated margin, each position's margin requirements will be calculated independently. While portfolio margin provides much greater capital efficiency, isolated margin can be good for:

• Directional perpetual future positions

• Directional option buying

• Traders who just want to pay the full upfront premium when buying options

Isolated margin is a straightforward way to manage directional trading positions, where each position you open is treated independently, with their own dedicated margin allocation. This means every position's margin is calculated separately and then added together, regardless of any offsetting or amplifying relationship between your positions.

Isolated margin is particularly well-suited for traders who primarily buy options, as you simply pay the full premium upfront with no risk of liquidation, making position management clear and predictable. While this approach makes position management and risk assessment simpler, it typically requires more capital than portfolio margin, especially for complex strategies or hedged positions, because it doesn't recognize the potentially risk-reducing relationship between different positions in your account.

Implementing isolated margin is a priority on the Kyan roadmap following a successful launch.

Porfolio Margin vs Isolated Margin

Portfolio margin works best for:

• Multi-leg option trades

• Portfolio management

• Hedging strategies

While portfolio margin involves more complex calculations, it provides significant benefits:

1. More efficient use of capital

2. Recognition of hedged positions

3. Optimized margin requirements for strategies

Isolated Margin works best for:

• Options buyers

• Directional perpetual future positions

• Traders who just want to pay the full upfront premium when buying options

Portfolio Margin on Kyan (Premia V4)

Kyan (Premia V4) integrates portfolio margin to unlock new opportunities for leverage, hedging, strategy execution, underwriting, and capital efficiency.

Instead of calculating margin requirements for each position separately, portfolio margin evaluates risk across your portfolio as a whole. Portfolio margin results in a more efficient use of capital and flexible portfolio management due to the offsetting nature of different positions being recognized.

Stay tuned for a comprehensive overview of Kyan’s risk engine in a future article.

Questions about Kyan (Premia V4)?

If you have any questions about Kyan or portfolio margin, join our Discord or shoot us a message on X. We would love to know your thoughts!

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