Margin
Last updated
Last updated
Backpack follows a multi-currency, cross-margin model designed to maximize capital efficiency.
Unlike other exchanges that force you to segregate your balances in separate wallets (spot, futures, margin, earn, etc), Backpack offers a single cross-margin wallet that can be used to trade all products. If you would like to isolate risk, you can seamlessly create a new subaccount, which is completely segregated from other subaccounts.
You can use a variety of non-USD assets as collateral, which contribute towards your account equity in order to open and maintain futures and borrow positions.
To provide the highest level of capital efficiency amongst all centralized exchanges, Backpack allows you to use 100% of lent assets as collateral, enabling them to earn yield even when it's being used to maintain positions. Additionally, unrealized profits are cycled into the borrow lending pool and generate yield as well, providing further capital efficiency.
Here's a quick video walkthrough that shows you how it works:
Collateral on Backpack is calculated in USD terms. Assets that are eligible for collateral receive a Collateral Value, which contribute towards your Net Equity.
Collateral Value is calculated as follows: Token Quantity * Mark Price * Weight
Each collateral asset has a default Collateral Weight, or in other words, a haircut. An asset's Collateral Weight may decrease based on how large the collateral amount is to adjust for risk and the time needed to liquidate. The Collateral Value curve for each of your assets can be found in the statements page.
Here’s an example to illustrate how Collateral Value is calculated (note that the haircut values below are not accurate. Check the statements page to see the actual weights):
As illustrated above, while this user holds $120,000 worth of assets, their Total Account Collateral (i.e. the sum of the Collateral Value of all their assets), is $116,300.
Equity represents the risk-adjusted value of your account, which can be used to maintain futures and borrow positions. This is also known as your Margin Balance.
Net Equity is calculated as follows = Total Account Collateral + Total Unrealized PnL + Unsettled Balances - Total Borrow Liability
You can find all these values and a full breakdown of your account’s equity in your statements page.
Available Equity is the capital you can use to open new positions or orders. It's calculated as Net Equity - Equity Locked, where Equity Locked represents margin tied up in open positions and orders that increase exposure. To maximize efficiency, your unrealized profits also count toward Available Equity.
Your Account Margin (AKA Margin Health) can be evaluated using these two data points:
1) Initial Margin Rate (IMR) - this illustrates how much Available Equity is left to open new positions. Once IMR reaches 100%, no new positions that increase risk can be opened.
IMR = Total Initial Margin / Net Equity
You can see your Initial Margin Balance (i.e. how much initial margin is being used across all your positions) in the Margin Overview section on the trade page when you hover over your Initial Margin percentage.
As a rule of thumb, the Initial Margin required to open a new position can be calculated as follows:
Initial Margin = Position Notional Value / Max Account Leverage
For example, if your max account leverage is 10x and you want to open a $10,000 position, your initial margin will be $1000.
However, keep in mind that, just as with Collateral Value, as the size of the position increases, the initial margin requirement may increase as well to adjust for risk.
Additionally, margin requirements may differ by market. For example, if the baseline Initial Margin Fraction (IMF) for a given market is 0.20, the initial margin requirement will be 20% of position size (ignoring large sizes), even when the max account leverage is 10x. To see the margin requirements for a given market, check the Margin tab on the trade page.
To see how much Margin a new position requires before submitting an order, you can see the Margin Required value when placing an order. To see how much margin an existing position is using, see the Initial Margin column in the Positions tab.
2) Maintenance Margin Rate (MMR) - this shows how far your account is from getting liquidated. Once MMR reaches 100%, your account will start getting liquidated.
MMR = Total Maintenance Margin / Net Equity
As a rule of thumb, the Maintenance Margin Fraction (MMF) starts at 5%. However, same as with Initial Margin, your Maintenance Margin requirements may increase depending on the size of your position and also may differ by market.
To see your Maintenance Margin (i.e. the total maintenance margin used across all of your positions), hover over your Maintenance Margin percentage in the Margin Overview section on the trade page.
Backpack’s margin model is centered around subaccounts.
Every subaccount is cross-margined, multi-currency, and has access to all products (spot, futures, spot-margin, borrow, lending). To illustrate the simplicity of this model, if you deposit USDC and BTC, your Net Equity increases and you can start trading all products right away without taking any extra steps. No need to move assets around wallets to start trading.
Moreover, subaccounts are completely segregated from one another. This means that any funds sitting in one subaccount are not exposed to another subaccount that might be getting liquidated. Balances and risk are completely isolated at the subaccount level, allowing you to run different strategies and determine how much in assets you want to put at risk.
If you prefer to trade with Isolated Margin, you can open a position in a different, isolated subaccount.
You can create up to a maximum of 10 subaccounts and seamlessly transfer funds between each other.
Max leverage on Backpack is set at the subaccount level.
You can choose how much risk you want to take on a given subaccount across all your positions by editing your Max Account Leverage in a given subaccount.
When you change your Max Leverage, the initial margin used by open positions and future orders will change as well.
Futures on Backpack settle in USDC. This includes fees, funding payments, and PnL.
If you have both USDC and non-USDC collateral (e.g. BTC), the system will use your USDC balance to cover these settlements.
When you have insufficient USDC but holds other collateral like BTC, the system automatically creates a USDC borrow to cover settlement payments instead of selling the collateral. For example, if the user needs to cover a 1 USDC fee to open a position, the system creates a 1 USDC borrow rather than liquidating any BTC.
In the case that the USDC lending market's utilization rate exceeds the throttle threshold or if you get liquidated while using Non-USDC assets as collateral, your collateral will get converted to cover the settlement payments. These conversions would appear on Reconciliation Conversions in the Settlements tab.
