💹 Margin and leverage on Rho

Margin is the collateral required to open and maintain a position in Rho Protocol's interest rate futures.

How margin works on Rho

Deposits: Deposits refer to the initial and subsequent funds that traders place in their accounts to initiate and maintain trades. An initial deposit is required to open a trade, serving as a security buffer to cover potential losses. Traders can also make additional deposits to increase their margin. This is strategic as it lowers the risk of reaching a liquidation threshold.

Withdrawals: These are funds you can take out from your margin account. Withdrawals reduce the available margin, so they must be managed carefully to avoid falling below required levels.

P&L from futures: This stands for Profits and Losses from your futures positions. If your trades are profitable, your margin increases; if not, it decreases.

Fees: These are costs associated with trading on Rho, such as transaction fees. Fees are deducted from your margin, reducing the total amount available.

Why is margin so important?

Maintaining adequate margin is crucial because it ensures you have enough collateral to support your trades. This reduces the risk of default, protecting both you and the platform from excessive losses and maintaining overall market stability.

Liquidation is a process that occurs when a trader's account balance falls below the required margin level, indicating that the account no longer has enough funds to cover the potential losses of open positions.

To prevent further losses and protect the financial integrity of the trading platform, the trader's positions are automatically closed or "liquidated."

This action is taken to ensure that the debt does not exceed the collateral value, safeguarding both the trader and the platform from more significant financial risks.

Formula for margin calculation

The margin in a trading account can be calculated using the following formula:

Margin = Deposits − Withdrawals − Fees + P&L

This formula reflects the current financial state of the trading account, incorporating all deposits, withdrawals, transaction fees, and the profit and loss from trading activities.