Positions

Regardless of the reasoning for trading derivatives, the primary objective always remains the holding of positions to hedge exposure. Positions are managed via the trading of orders, allowing traders to open, adjust, or close them. In futures, options and perpetual contracts, traders can hold either a long or short position in each contract, but not both simultaneously, as they offset each other.

Margin and Collateral

Every open position requires collateral, locked as a margin on the protocol. The CVEX Protocol employs a cross-margin mechanism across all contracts on the same platform, calculating the margin based on factors such as historical volatility of the contract price and historical cross-correlation of trader positions. Usually, the total required margin for a user's portfolio will be less than the sum of the margins for each individual position. In a well-hedged position, it will be significantly less.

The margin requirement is regularly compared against the portfolio's equity, which includes collateral and unrealized profits and losses. This comparison helps maintain a balance between the trader's exposure and their capacity to sustain losses. If the margin-to-equity ratio exceeds a pre-set threshold, indicating increased risk, the Clearance Bots automatically initiate, and protocol executes the liquidation of the portfolio. This mechanism is designed to mitigate potential losses and maintain market stability.

Position Equilibrium

CVEX maintains an equilibrium of long/short positions for futures and buy/sell for options, essential for market stability and ensuring contract settlement. In extreme market conditions, and as a last resort to enforce this equilibrium, the system may reduce traders' positions following a counterparty liquidation protocol, with fair reimbursement based on the contract's Mark Price.

Futures and options on CVEX, being expirable, are settled in USDC. At expiration, Clearance Bots close all active positions, and profits and losses are distributed based on the latest Index price.

Perpetual Contracts

Perpetual positions, unlike traditional futures, do not expire and continuously align with the underlying asset's price movements. Regular funding rates, adjusted based on the difference between perpetual contract and spot prices, are paid from long to short positions or vice versa, stabilising the perpetual market and ensuring it mirrors real-time market dynamics. Interest rates are implied from the underlying components of USDC if no forward market exists in the contract.