Cross collateral specifications (Global Derivatives)

With cross collateral models, all cross collateral currencies are assessed on their current USD value, and the total USD value of the account is used for margin purposes. This allows currencies other than the settlement currency to be used to satisfy the margin requirements of a particular instrument. For example, BTC can be used to support positions in USDC-settled instruments. Any cross collateral currency can be used as margin for any cross-margined derivative position.

Settlement currencies

Each tradeable derivative instrument on Coinbase Advanced 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.

Cross collateral currencies

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 cross-margined derivative position on Coinbase Advanced.

Offset currencies

An offset currency can be used to offset upside risk only in products for the respective currency.  Deribit currently designates no currencies as offset-only.

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

Cross collateral haircuts

For the purposes of calculating the initial margin (IM), some cross collateral currencies may have a haircut applied. The haircut rate depends on the currency being used as collateral, and it's possible for a currency's haircut rate 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.

Note: Haircuts add to your initial margin requirement — they don't reduce your margin balance.

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% is reserved for the haircut.

Account rebalancing

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 set by Deribit and the relative limit is a percentage of the cross equity. Once either limit is breached, the account is rebalanced 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 is 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 only rebalances the currencies held in the account — positions in derivatives instruments (e.g., crypto options, futures, perpetuals) aren't liquidated during this process.

There are no additional fees associated with rebalancing.

Collateral fees

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.

While the equity of a currency in an account remains negative, a collateral fee is charged to that account. This fee is charged daily in the same currency as the negative balance (default = 0.05% per day), based on the amount of time the negative equity is held, down to a granularity of seconds.

To avoid paying collateral fees, you can replenish the currency with the negative equity yourself, for example by transferring funds into your Global Derivatives portfolio. The main role of collateral fees is to encourage customers to stay on top of any required rebalancing themselves.

Cross collateral withdrawable balance

In all account types, any amounts held for initial margin for positions or orders are not available for withdrawal, and are therefore not included in the withdrawable balance. In cross collateral accounts there is an additional restriction for any negative equity. For example, if losses leave one currency's equity negative, the amount of your other collateral available to transfer is reduced by the value of that negative equity.

Cross collateral PM spot holdings

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 doesn't mean that simply holding a balance on a cross PM account could result in the account being liquidated, and it doesn't affect your ability to withdraw funds when there's no derivative position open. It's simply a result of all balances being converted to dollars for margin calculations — the spot holdings are also an entry in the risk matrix.

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