# Cross-Margin / Multi-Collateral Management

MUNE uses cross-margining by default, meaning that a user’s entire portfolio consolidates liabilities to optimize margin usage across positions. On MUNE, <mark style="color:purple;">your portfolio is your margin.</mark>

In DeFi, universally cross-margined trading accounts are still rare. To understand MUNE’s approach, it’s important to contrast two margin systems:

* <mark style="color:purple;">**Isolated Margin**</mark>**:** Liability is limited to the initial margin posted for a single position.
* <mark style="color:purple;">**Cross-Margin**</mark>**:** Liabilities and collateral are shared across multiple positions within an account.

## <mark style="color:blue;">**Isolated Margin**</mark> <a href="#isolated-margin" id="isolated-margin"></a>

Isolated margin is often used for volatile, speculative positions and limits a user’s account balance risk. Isolated margin is popular for perpetuals trading on both DEXs and CEXs.

> **Example:** Alice has 20K USDC on Binance. She opens a $BTC perp position worth $50K at 10x leverage, using 5K as collateral. Upon liquidation, only the 5K USDC is lost; the remaining 15K is preserved.

## <mark style="color:blue;">**Cross-Margin**</mark> <a href="#cross-margin" id="cross-margin"></a>

Cross-margining reduces margin requirements by assessing a user's overall portfolio risk across multiple positions. Open positions share capital toward each position’s margin requirements – reducing the risk of single-position liquidations while requiring a lower initial margin for each position.

Cross-margining is popular in TradFi and available on many CEXs, but its scope is limited in DeFi.

On MUNE, you can utilize all your funds—*deposits*, *positions*, and *PnL--* toward your *margin*.

> <mark style="color:purple;">**This means your open positions across spot, perpetuals, and the money market (e.g., spot borrowing) contribute to your account’s portfolio margin**</mark><mark style="color:purple;">.</mark>

Users can trade more flexibly and efficiently as the risk of margin calls and forced liquidations for single positions declines.

MUNEs cross-margin design also allows for portfolio margining. Similar to regular cross-margin, portfolio margining is where unrealized profits can be used to offset unrealized losses or deployed as margin for existing positions or for opening new positions. All relevant balance calculations for a portfolio’s margin are calculated automatically on the MUNE back-end and displayed intuitively as a trading account’s portfolio health on the MUNE trading app.

Universally cross-margined trading accounts can be beneficial for both sophisticated and retail traders for several reasons, including:

<mark style="color:purple;">**Lower Margin Requirements**</mark><mark style="color:purple;">:</mark> Cross-margined accounts typically have lower margin requirements than traders opening the same positions in separate, isolated margin accounts.

> **Example**: Alice with a long position in spot margin $ETH and a short position in $ETH perpetuals may have a lower cumulative margin requirement than a trader with the same position in isolated margin accounts.

<mark style="color:purple;">**Automatic Risk Management**</mark><mark style="color:purple;">:</mark> Mune enables traders to avoid liquidations by automatically calculating and transferring margin between open positions to maintain the required margin levels. This is useful for traders in volatile market conditions and when trading complex strategies.

> **Example**: Alice can open a long $ETH spot position alongside a short $wBTC perp position without manually transferring margin between the accounts to maintain the required margin levels – it’s performed automatically and displayed on the portfolio page.

<mark style="color:purple;">**Risk/Reward Optimization**</mark><mark style="color:purple;">:</mark> Traders can adjust the leverage of their positions across multiple positions to suit their individual risk preferences – it’s more capital-efficient.

> **Example**: Alice can maintain a highly leveraged long position in $wBTC and a lower leverage short position in $ETH, achieving a better risk-reward ratio than a trader with the same positions in isolated margin accounts. This is because Alice can set a higher margin requirement for a highly leveraged long perpetual position and a lower margin requirement for a lower leverage short perpetual position on MUNE.

<mark style="color:purple;">**Portfolio Margining**</mark><mark style="color:purple;">:</mark> Allows unrealized profits from open positions to offset the margin requirements of other positions.

> **Example**: If the value of Alice’s long $ETH spot margin position on MUNE falls, the excess margin (e.g., unrealized profits) in Alice’s short $ETH perp position may be used to maintain the required margin level, avoiding liquidation of the long spot margin position.

<mark style="color:purple;">**Simplified Account Management**</mark><mark style="color:purple;">:</mark> Overall portfolio health and risk indicators are easily accessible in a single interface – the *Portfolio Overview*. Trading with multiple open positions is streamlined as MUNE's trading accounts offer a sweeping view of traders’ overall risk, where all their open positions are linked and managed together.

## <mark style="color:blue;">**Managing Portfolio Risk**</mark> <a href="#managing-portfolio-risk" id="managing-portfolio-risk"></a>

Managing your portfolio on MUNE is simplified with a sweeping view of your cross-margined trading account. The MUNE app supplements the clarity of the portfolio overview page with specific risk tiers, intuitively alerting users to fluctuations in the weighted value of their portfolio’s *Health.*

Health is the amount of capital (quoted in USD) your account has to trade with before it can be liquidated.

You can think of *Health* as your *Weighted* *Margin* / *Risk*. You have two different kinds:

1. <mark style="color:purple;">**Maintenance**</mark>
2. <mark style="color:purple;">**Initial**</mark>

Your *Health* is determined by giving each balance and position a *Weighted Value*. *Initial health* is weighted greater for shorts and less for longs when compared to *Maintenance*.

The remaining *Maintenance Health* acts as a buffer for the user to de-risk before risking liquidation. Once all of the *Maintenance Health* is used, your account can be liquidated.

On MUNE, calculations of *Weighted Value* (e.g., portfolio health) are performed automatically on the back end and reflected in a user’s portfolio overview page on the MUNE app interface as the portfolio’s *Health*.

Different tiers of portfolio risk are classified and displayed visually within the “*Health Battery*” of the portfolio page based on the following parameters:

* <mark style="color:green;">**Low Risk**</mark> – Your portfolio health is defined as low-risk with the flexibility to open new positions without incurring excessive risk.
  * **Health Bar Status** = **40 - 100%** (Left to Right)
  * **Initial Margin Usage** = **0.00 → 66.66%**

<figure><img src="https://docs.vertexprotocol.com/~gitbook/image?url=https%3A%2F%2F3335079400-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCTsOSctsOCQ9jTKZwjZ9%252Fuploads%252FI4dZQ08iJHG9Inz8b2op%252FLow-Risk.png%3Falt%3Dmedia%26token%3D28795748-8a30-40fb-812e-3be1039d3038&#x26;width=768&#x26;dpr=4&#x26;quality=100&#x26;sign=68ee558&#x26;sv=2" alt=""><figcaption><p>Low-Risk Health Battery State</p></figcaption></figure>

* <mark style="color:yellow;">**Medium Risk**</mark> – This account state doesn’t come with any major warnings, and it’s a gauge of your *Initial Health*. Medium-risk occurs when:
  * **Health Bar Status** = **20 - 40%** (Left to Right)
  * **Initial Margin Usage** = **66.66 → 88.88%**

<figure><img src="https://docs.vertexprotocol.com/~gitbook/image?url=https%3A%2F%2F3335079400-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCTsOSctsOCQ9jTKZwjZ9%252Fuploads%252FCfFwRCCKKVxWBjAcHTTn%252FMedium_Risk.png%3Falt%3Dmedia%26token%3Dfe27daeb-d995-4812-a75e-ef7ba0184285&#x26;width=768&#x26;dpr=4&#x26;quality=100&#x26;sign=8de5d9e3&#x26;sv=2" alt=""><figcaption><p>Medium-Risk Health Battery State</p></figcaption></figure>

* <mark style="color:orange;">**High Risk**</mark> – Comprises the next 10% of the *Health Bar* after *Extreme Risk*. You can still enter new positions at this point, but it’s a warning to be cautious.
  * **Health Bar Status** = **10 - 20%** (Left to Right)
  * **Initial Margin Usage** = **88.88 → 99.99%**

<figure><img src="https://docs.vertexprotocol.com/~gitbook/image?url=https%3A%2F%2F3335079400-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCTsOSctsOCQ9jTKZwjZ9%252Fuploads%252Fup2hT2gw79d7ZictT6M7%252FHigh-Risk.png%3Falt%3Dmedia%26token%3Decefae9a-f2b1-45a6-ab80-1360c308fb2b&#x26;width=768&#x26;dpr=4&#x26;quality=100&#x26;sign=943c585d&#x26;sv=2" alt=""><figcaption><p>High-Risk Health Battery State</p></figcaption></figure>

* <mark style="color:red;">**Extreme Risk**</mark> – Also known as *Maintenance Mode*, Extreme Risk means your *Initial Health* is less than 0 USD, and you can’t take on any more risk. During Extreme Risk, you must de-risk by depositing more funds or closing positions. If you don’t do so quickly, you risk liquidation.
  * **Health Bar Status** = **0 - 10%** (Left to Right)
  * **Initial Margin Usage** **=> 100%**

<figure><img src="https://docs.vertexprotocol.com/~gitbook/image?url=https%3A%2F%2F3335079400-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCTsOSctsOCQ9jTKZwjZ9%252Fuploads%252FxX3nYZ7T4E0By8UoYPlv%252FExtreme-Risk.png%3Falt%3Dmedia%26token%3D36a22bd5-d380-4aaa-9349-b291c74455a9&#x26;width=768&#x26;dpr=4&#x26;quality=100&#x26;sign=84cbd7b4&#x26;sv=2" alt=""><figcaption><p>Extreme-Risk Health Battery State</p></figcaption></figure>

The tiers of portfolio risk will automatically reflect dynamic market conditions in real-time across an account’s open positions.

> <mark style="color:purple;">**Users are encouraged to be mindful of the current portfolio state of their trading account on MUNE. Markets are unpredictable, and proper risk management necessitates concerted attention to your portfolio’s risk tiers.**</mark>

The trading interface will notify users when their accounts reach higher levels of risk, prompting them to deposit more assets into MUNE to reduce their overall portfolio risk or close open positions.

## <mark style="color:blue;">**Cross-Margin Trade Strategy Example – Basis Trades**</mark> <a href="#cross-margin-trade-strategy-example-basis-trades" id="cross-margin-trade-strategy-example-basis-trades"></a>

The advantages of universal cross-margin on MUNE can be expressed further by examining a popular trade strategy within crypto markets – **the basis trade**.

Basis trades are a common strategy to capture the spread between two products:

1. <mark style="color:purple;">**Spot**</mark>
2. <mark style="color:purple;">**Futures**</mark>

The spread (i.e., the “basis”) is the difference between the spot and futures price.

The spot and futures prices eventually converge at maturity, and the profit is the difference between the initial prices minus fees. It’s a classic amongst derivatives traders in both TradFi and DeFi, expressed most often with spot and futures products.

Perpetual swaps are the most popular futures product in crypto.

With no expiration, they maintain price parity with the underlying spot asset via funding rates where interest is paid on open positions relative to the difference between the perpetual and indexed spot prices. Spot and perp prices don’t necessarily have to converge completely and can deviate for extended periods.

Comparatively, the expiration date of vanilla futures contracts is the primary force converging futures with spot prices as the expiry approaches.

Crypto basis trades with perpetuals and spot assets are popular since the perpetuals price typically trades at a premium to spot prices – meaning basis trades of *long spot/short perp* are typically profitable and delta neutral positions. However, basis trades are more capital-intensive on many exchanges than MUNE since they usually require two separate markets for the perpetual and spot positions.

> <mark style="color:purple;">**With linked spot and perpetual markets, MUNE will provide traders with native markets for basis trading.**</mark>

> **Example:** If Alice is long ETH spot on Binance and short an ETH perpetual contract on isolated margin, her open perpetual contract is treated as a standalone position. Alice is responsible for maintaining the full margin requirement – even if she has an offsetting spot ETH position.

As a result, arbitrage becomes unnecessarily capital inefficient.

> <mark style="color:purple;">**On MUNE, cross-margining with linked spot and perpetual markets improves the arbitrage inefficiency of basis trading while allowing traders to offload residual risk with minimal friction.**</mark>

Since MUNE's on-chain risk engine recognizes the redundancy of requiring the full margin amount for the ETH perpetual position in the example of Alice above, the margin requirement for the ETH perpetual is substantially reduced – allowing for more capital-efficient trading.

MUNE's embedded money market also allows assets to be used as both collateral and available for borrowing to leverage spot positions. As a result, the basis rate is more closely tethered to the borrowing rate of stables and tokens.

Profitable arbitrage conditions arise when <mark style="color:purple;">**basis returns > borrowing costs**</mark>.

Advantageous arbitrage conditions on MUNE generate a compounding effect of greater volumes and improved liquidity since traders can execute profitable basis trade strategies on MUNE with leverage and lower margin requirements.

> <mark style="color:purple;">**Unlock the full potential of your trading capital with MUN**</mark>E<mark style="color:purple;">**. Manage a single, universal margin account — no more switching, no more inefficiencies. Trade smarter.**</mark>