What Is the Difference between Gross and Net Margining for Client Accounts?
Gross margining requires the clearing member to post margin with the clearing house for each individual client account, without offsetting long and short positions between different clients. Net margining allows the member to offset the positions of different clients and post a single, smaller margin amount to the clearing house based on the net risk.
While net margining is more capital-efficient for the member, gross margining provides greater protection for clients, as their collateral is not used to offset the risk of other clients and is easier to port in a default.
Glossar
Gross Margining
Margin ⎊ The concept of gross margining, within cryptocurrency derivatives and financial markets, fundamentally concerns the initial collateral requirement established by a clearinghouse or exchange to support a derivative position.
Gross versus Net
Definition ⎊ Gross versus Net represents the fundamental distinction in financial accounting and risk management between the total notional value of all outstanding transactions and the single, residual value after legally enforceable offsetting.
Net Margining
Principle ⎊ Net Margining is a risk management principle where the total margin requirement for a portfolio of derivatives is calculated based on the net risk exposure across all positions.
Clearing House
Settlement ⎊ A clearing house, within cryptocurrency and derivatives markets, functions as an intermediary between buyers and sellers, mitigating counterparty risk through a process of novation ⎊ replacing original trade agreements with new ones directly with the clearing house.