Portfolio Margin Efficiency

Portfolio margin efficiency is a risk management framework that allows traders to reduce their total margin requirement by accounting for the offsetting risk characteristics of their combined positions. Instead of margining each position independently, the system calculates the net risk of the entire portfolio.

This allows for lower collateral requirements, freeing up capital for further trading. In crypto, this is complex due to the high correlation between different assets.

Protocols must use sophisticated risk models to ensure that the reduced margin does not jeopardize the system's solvency. It significantly improves capital efficiency for professional traders and institutions.

However, it requires a deep understanding of asset correlations and tail risks.