Margin Math

How Phoenix calculates effective collateral, position margin, and limit-order margin

Phoenix evaluates each trader account as a single margin account. Positions, funding, unrealized PnL, and risk-increasing resting orders all feed into the same account health calculation.

Margin is the mechanism that lets traders take positions larger than their posted collateral while keeping the exchange solvent. A perp venue always has a long and a short side for the same open interest. When one side has unrealized profit, the other side has the matching liability. The risk system is designed to keep those liabilities collateralized and to make sure risky positions can be reduced before they create bad debt.

At a high level:

account_health = effective_collateral - margin_requirement

If effective collateral falls through the risk thresholds, Phoenix can cancel risk-increasing orders, liquidate through the order book, escalate to backstop liquidation, and finally use ADL.

Risk invariants

Phoenix margin is built around three practical invariants:

• long and short open interest must balance
• unrealized profits must be matched by liabilities elsewhere in the system
• those liabilities must remain collateralized

If a losing account can no longer cover the unrealized profit owed to the other side, the system has bad debt. Margin requirements, mark prices, funding, liquidation thresholds, and open interest controls all exist to reduce the probability of that outcome.

Effective collateral

Effective collateral is the collateral value Phoenix uses for risk checks. It is similar to account equity, but Phoenix can discount positive unrealized PnL before treating it as usable collateral.

effective_collateral = deposited_collateral
  + discounted_positive_unrealized_pnl
  + negative_unrealized_pnl
  + unsettled_funding

Important details:

• deposited collateral is the USDC collateral balance on the trader account
• positive unrealized PnL can be discounted by the market’s uPnL risk factor
• negative unrealized PnL counts in full
• unsettled funding is included because it changes account risk before final settlement

Phoenix discounts positive uPnL to reduce the risk that manipulated or unstable mark prices create too much usable collateral. This matters more for volatile or lower-liquidity assets, where mark prices can be easier to move temporarily.

See Market Parameters for market-specific uPnL risk factor values.

Mark price and PnL

Position value is based on mark price, not the last trade price.

unrealized_pnl = position_size * (mark_price - entry_price)

Using mark price for PnL, margin, and liquidation checks helps prevent a single trade or thin order book from pushing accounts into unsafe states. See Mark Price for how Phoenix builds the mark.

Position margin

For each market, Phoenix calculates margin from the absolute position size and the market’s leverage tier.

position_notional = abs(position_size) * mark_price

position_margin = position_notional / max_leverage_for_size

The leverage tier is selected from the resulting position size. A fill that moves the total position into a different tier can change margin for the whole resulting position, not only the newest fill.

Limit-order margin

Risk-increasing resting limit orders can require margin before they fill.

Phoenix evaluates resting bids and resting asks separately for each market:

market_initial_margin = position_margin
  + max(bid_side_margin_increase, ask_side_margin_increase)

This matters because a trader cannot fill every bid and every ask in the same market into the same final directional exposure. Phoenix therefore reserves margin for the worse side, not the sum of both sides.

The margin increase for each side is based on the hypothetical position if those non-reduce-only orders fill:

side_margin_increase =
  (margin_after_side_fills - current_position_margin)
  * limit_order_risk_factor

Notes:

• reduce-only orders do not add margin
• orders that only reduce or close the current position do not add margin
• limit-order margin uses the market’s mark price and size, not the order’s limit price
• limit_order_risk_factor is market- and tier-specific
• limit-order margin is part of initial margin and can move an account toward the cancellation threshold before the order fills

See Leverage Tiers and Market Parameters.

Example portfolio

Assume a cross account has 12,000 USDC deposited collateral and the following open positions:

Market	Position	Entry	Mark	Unrealized PnL
BTC	Long 0.10 BTC	60,000	62,000	+200 USDC
SOL	Short 100 SOL	150	140	+1,000 USDC

Using the fallback market parameters for BTC and SOL, positive uPnL receives 100% collateral credit for trading risk checks. Assume unsettled funding is -50 USDC.

discounted_positive_unrealized_pnl = (200 + 1,000) * 1.00 = 1,200.000000

effective_collateral = 12,000 + 1,200 - 50 = 13,150.000000 USDC

Now calculate position margin using the first leverage tier from phoenix/market-parameters-fallback.json. Values below include the quote-lot rounding used by the Rise margin calculator.

Market	Position notional	Max leverage	Position margin
BTC	0.10 * 62,000 = 6,200	20x	310.000000
SOL	100 * 140 = 14,000	15x	933.333334

The account also has resting limit orders:

Market	Resting orders	Effect if filled
ETH	Bid 2 ETH, ask 1 ETH	No current ETH position, so either side opens exposure
SOL	Bid 50 SOL, ask 25 SOL	The bid reduces the short; the ask increases the short

Assume ETH mark price is 3,000 and SOL mark price is 140. In the fallback parameters, ETH uses 20x first-tier max leverage, SOL uses 15x, and both markets use a 100% first-tier limit_order_risk_factor.

For ETH:

bid side: 2 ETH * 3,000 / 20x = 300.000000 initial margin
bid limit-order margin = 300.000000 * 100% = 300.000000

ask side: 1 ETH * 3,000 / 20x = 150.000000 initial margin
ask limit-order margin = 150.000000 * 100% = 150.000000

ETH market initial margin = 0 + max(300.000000, 150.000000) = 300.000000

For SOL:

current short position margin = 100 SOL * 140 / 15x = 933.333334

bid side: buying 50 SOL reduces the short from 100 SOL to 50 SOL
bid limit-order margin = 0

ask side: selling 25 SOL increases the short from 100 SOL to 125 SOL
margin after ask fills = 125 SOL * 140 / 15x = 1,166.666667
incremental margin = 1,166.666667 - 933.333334 = 233.333333
ask limit-order margin = 233.333333 * 100% = 233.333333

SOL market initial margin = 933.333334 + max(0, 233.333333) = 1,166.666667

Total initial margin:

BTC margin = 310.000000
SOL margin = 1,166.666667
ETH margin = 300.000000

total_initial_margin = 1,776.666667 USDC

The account is healthy because effective collateral is above initial margin:

13,150.000000 effective collateral > 1,776.666667 initial margin

Using the fallback threshold factors for these markets, the account’s risk thresholds would be:

Threshold	Calculation	Result
Cancel margin	BTC 310.000000 * 70% + SOL 1,166.666667 * 75% + ETH 300.000000 * 70%	1,302.000000
Maintenance margin	total_initial_margin * 50%	888.333333
Backstop requirement	total_initial_margin * 20%	355.333333
High-risk margin	total_initial_margin * 10%	177.666666

Maintenance margin and other thresholds

Phoenix derives lower risk thresholds from initial margin using market-specific risk factors. These thresholds are the escalation ladder the protocol uses as an account becomes more dangerous to the system.

cancel_margin = initial_margin * cancel_order_risk_factor

maintenance_margin = initial_margin * maintenance_risk_factor

backstop_requirement = initial_margin * backstop_risk_factor

high_risk_margin = initial_margin * high_risk_factor

Initial margin is the opening and healthy-account requirement. Maintenance margin is the main liquidation threshold. If effective collateral falls below maintenance margin, the account can be liquidated.

The broader risk sequence is:

• below cancel margin: risk-increasing limit orders can be cancelled
• below maintenance margin: market liquidation can begin
• below backstop requirement: distressed positions can be transferred to a backstop account
• below high-risk margin: ADL can become available

See Liquidations for the liquidation sequence.

Liquidation estimates

Liquidation price is an estimate, not a fixed promise.

For a single position, Phoenix solves for the mark price where effective collateral would fall to the relevant maintenance requirement:

collateral + other_upnl + q * (P - entry)
  = other_maintenance_margin + maintenance_factor * abs(q) * P / L

Where:

• q is signed position size
• P is the estimated liquidation price
• L is the active leverage tier
• other_upnl is the contribution from other markets in the same cross account
• other_maintenance_margin is the maintenance margin from other markets in the same cross account

This is why cross-margin liquidation prices can move when funding, mark prices, other positions, or resting orders change.

In a cross account, profitable positions in one market can support risk in another market. That is capital efficient, but it also means liquidation estimates are portfolio-aware. A BTC liquidation price can move because SOL PnL changed, funding settled, or a risk-increasing ETH order was placed.

See Liquidations for the expanded formula and limit-order example.