# Leverage & Margin Ratio

• Updated

## Cross Margin

Perpetual Protocol v2 uses cross margining, so all your funds are in a pool that backs each position. It is useful to think of your funds as collateral which you use to take out a loan from the exchange. This loan is referred to as your position.

For example, assuming 1 ETH is $3000, if you put up 300 USDC of collateral, the exchange will let you open a position of up to 1 ETH—in this case you are borrowing$2700 worth of ETH.

This means you can use Perpetual Protocol to trade more funds than you own.

It also means that the exchange takes on risk of your position defaulting—see more in the section on liquidation penalties below.

When you deposit funds as collateral, the amount you can deploy as margin is called buying power. Currently, Perpetual Protocol allows up to 10x leverage, meaning your buying power is 10 times greater than the collateral you deposit.

For example, if you deposit 100 USDC, your buying power will be 1000 USD.

#### Warning

The more buying power you use, the higher the leverage. High leverage exposes you to risk of liquidation

## Margin Ratio

Margin ratio is the ratio of your position value and collateral value.

For example, if your long position of 1 ETH is worth $1000 and your collateral is worth$200, your margin ratio will be 20%.

Let's say the position's value increases to $3200 because the price of the ETH goes up. Your unrealized profit would then be$2200, bringing the total collateral to $2400. With the position value now equal to$3200, the margin ratio is found by dividing the collateral value by position value, which gives 75% (=$2400/$3200).

For a short position, when the price increases the unrealized losses decrease your total collateral but the position value also increases.

When shorting 1 ETH at $1000 using collateral worth$200, the margin ratio is 20%. If the price of ETH increases to $1100, the position value now becomes$1100 but the unrealized loss reduces the total collateral to \$100. As a result, the margin ratio then falls and is now equal to 11%.

### Maintenance Margin

You must maintain a margin ratio above 6.25% or risk liquidation. This is called "maintenance margin". Below 6.25% your position is considered at high risk of default, and will be proactively liquidated in order to protect the exchange.

## Liquidation Penalties

Liquidators will target your largest position by USD value for liquidation. This position will be liquidated completely, with a portion of the underlying margin going to the liquidator as a reward, and the remainder going to the exchange insurance fund.