Positions and margin

Trading on Aroon with margined derivatives, such as futures, allows traders to leverage their positions. This means traders can control a large position with only a fraction of its notional value as a deposit.

Margin in Aroon is the required amount of the market’s settlement asset to maintain open positions and orders. It acts as a ‘down payment’ for a position, while leverage indicates how much larger the notional value of the position is compared to the margin. For example, with 20 DAI, you could open a position worth 100 DAI, implying a 5x leverage and an initial margin of 20%.

Aroon calculates margin requirements based on the market's risk model and prevailing conditions. The margin set aside increases with larger positions and higher market volatility.

Positions in Aroon

Margin requirements are influenced by a trader's open volume and orders and are recalculated with market and position changes. Increasing risk through new orders raises the margin requirement, while orders reducing exposure may not require additional capital.

When opening a position on Aroon, the minimum assets needed are placed in a margin account for that market. Margin requirements may fluctuate over time, necessitating top-ups or releasing margin back to collateral. If trading across multiple markets with the same settlement asset, the collective positions determine the margin set aside. Price movements affect margin balances through unrealised profit and loss.

Automated Market Mechanisms

Since Aroon markets are automated and lack human oversight, certain mechanisms are vital for smooth operation and ensuring collateral availability:

• Margin: Aroon's system automatically calculates initial margin based on its risk model. If a market move threatens the margin level, Aroon seeks additional collateral from the general account to prevent liquidation. Profitable positions can lead to margin release. Aroon's cross-margin system means other positions with the same settlement asset can interact with the same account.

• Mark to Market: This process is more frequent in Aroon than in traditional exchanges. Each trade that alters the last traded price triggers a mark-to-market settlement. This mechanism adjusts assets in margin accounts based on profit or loss.

Mark to Market Settlements

Mark to market in Aroon adjusts for market value changes, settling gains and losses. If the market price rises, long position holders gain from short position holders, and vice versa for a price drop.

In Aroon's derivatives markets, mark to market occurs with every price movement and is based on the last traded price. This contrasts with traditional markets, where it might happen once daily. The final settlement price at market expiry comes from an external market data source.

Margin Dynamics

Margin varies with market movements and trader actions. Aroon's system ensures traders don't enter unsustainable trades.

Initial margin is calculated when placing the first order in a market. If insufficient funds exist in the general account, the order is rejected. Orders that increase open volume raise margin requirements, while decreasing volume should not unless it opens a position in the opposite direction.

After mark-to-market settlements, the system recalculates each trader's margin requirements based on current market prices and their position's impact.

Cross-Margining

Aroon supports automated cross-margining, allowing gains in one market to serve as margin in another when the same settlement asset is used. Traders can emulate isolated margin by operating separate parties (public keys) for each market.

Margin Requirements

Aroon's protocol calculates four margin levels: maintenance, initial, search, and collateral release margins. The maintenance margin is the minimum to keep a position open, derived from the market's risk model, including slippage calculations. Other margins are based on this maintenance level.