Does the Type of Derivative (E.g. Perpetual Future Vs. Option) Affect Collateral Requirements?
Yes, the type of derivative significantly affects collateral requirements. Perpetual futures typically require dynamic margin based on the funding rate and volatility.
Options, especially written options, require collateral to cover the maximum potential loss (which is the strike price minus the current price for a put, or infinite for an uncovered call), often leading to higher or more complex collateral formulas.
Glossar
Decentralized Perpetual Futures
Mechanism ⎊ Decentralized perpetual futures represent a novel financial instrument leveraging blockchain technology to replicate the functionality of traditional perpetual futures contracts, eliminating intermediaries and enhancing transparency.
Maximum Potential Loss
Exposure ⎊ Maximum Potential Loss (MPL) within cryptocurrency, options trading, and financial derivatives represents the theoretical worst-case financial detriment an investor could incur from a specific position or portfolio.
Dynamic Margin
Algorithm ⎊ Dynamic Margin refers to a risk management methodology where the required collateral for a derivatives position is not static but is continuously recalculated based on real-time market parameters.
Funding Rate
Cost ⎊ The Funding Rate is the periodic payment exchanged between long and short positions in perpetual futures contracts, designed to anchor the contract price to the underlying spot index price.
Perpetual Future
Contract ⎊ This instrument synthetically replicates the economic exposure of a traditional futures contract but is structured to exist indefinitely without a mandatory delivery date.
Perpetual Futures
Contract ⎊ Perpetual futures represent a type of financial derivative contract, specifically within the cryptocurrency and options trading space, that replicates the payoff of a traditional futures contract without a fixed expiration date.