Risk Management
Institutional approach in Crypto
Automate your counterparty relationships, and reduce risk, all on one screen.
We provide trading restriction mechanisms and other tools that strengthen protection against credit or market risk.
First Steps
Step 1: Configure Your Profile Upon first log in, cofigure your profile to set up trading with your Liquidity Provider.
Step 2: Set Currency and Limits Click "Edit" to select the currency for risk management and set the limit amount. Enable trading and click "Apply Changes" to save.
Step 3: Add more Counterparties To add a new Counterparty, click "+ New Connection" and enter the Counterparty ID. The Counterparty will appear in the Risk Management profiles list with a "Verification" status until the invitation is accepted.
Step 4: Monitor Connections After adding multiple Liquidity Providers, use the "Overview" widget to track statuses. View both incoming and outgoing connection requests on Risk Management page.
What does this section regulates?
This section regulates the risk management parameters with your liquidity providers. Set up a desired limit in your and the liquidity provider will set up a limit on their end. The the smaller of the two will apply.
Once the KYC is complete, you will need the ID to set up a limit on your end.
What is a counterparty limit?
It is a value that both you and the Liquidity Provider (LP) determine for trading. To start trading with each other, counterparties should set their counterparty limits against each other. It regulates the maximum possible open position with a particular counterparty.
a. Do I need to settle every trade? No. You may lock the exchange rates and settle in bulk.
b. How does the liquidity provider assign the limit? It depends on their risk assessment policy, your jurisdiction, etc.
c. Is it a renewable limit? Yes. Once you settle what you owe your liquidity provider and withdraw the assets, the limit will restore to its initial value
d. My limit is nominated in USD, does this mean I can only buy crypto for USD? No. You may execute crypto-crypto or any crypto-fiat trades. However, the value of the results of the trade cannot exceed the limit nominated in USD.
e. What if I need a temporary increase in the limit for bulk trade? Please contact us and your liquidity provider for the temporary increase of the limit.
f. Will I have access to more liquidity if my limit gets increased? Yes. You only see the liquidity that your gross limit permits.
What is a gross limit?
The Gross limit is regulating the maximum possible open position taker or maker may open (exposure). You can make a trade only if you have trading limits set and your free limits are positive.
a. How do you calculate the gross limit? We take the absolute values of everything you see in positions tab and summarize them using the formula below. Mind you that deposits also utilize the limit as well as uncommitted settlement transactions. Formula:
MAX( |SUM(Long reachable positions)|, |SUM(Short reachable positions)|)
b. What if I set my limit in USD and my counterparty sets it in EUR? We use a mark-to-market type of accounting thus we will recalculate the EUR value back to USD and will use the smaller value out of the two. The same logic applies to limits nominated in crypto.
c. What is an applied gross free limit? This the value of how much you may use for long or short positions (buying or selling)
What is a gross limit by asset?
The gross limit by asset allows you to limit your open position in a particular asset.
It works the same way as a regular gross limit, but takes into account only positions in the particular asset.
You may set a limit by asset in any asset you find convenient. Limit value will be converted to the target asset using prices of the assets at the moment when risk management is applied.
What is equity?
We summarize the value in USD of your open positions using the formula below: EQUITY = SUM(Positions) Since the base currency of our platform is USD, the assets you hold to maintain the required level of equity would be reevaluated against USD every 15 minutes. For example, if hold BTC as your collateral, its value may fall during the day to accommodate the limit in USD. Thus, your liquidity provider and the system would require you to top up the account.
How do I set up a limit with my liquidity provider (LP)?
Go to Risk Management
Press '+ New connection'
Input the counterparty ID that you receive from your LP and 'Request connection'
Select the currency of your limit
Input the CP Gross limit (buying power)
Enable trading
Press 'Apply changes'
Which currency I may use for the limits?
The one you use to evaluate your market exposure. Our recommendation is to use fiat currency (USD or EUR) for the limits.
Which limit prevails if they are different?
The smaller limit prevails over the greater one. For example, You have set 30 USD of Gross limit however, your LP has set only 10 USD for the counterparty limit described above. The system will use 10 USD as the limit.
If my liquidity provider requires posting collateral, how do I know if it’s time to settle or top up?
If you see any of the following statuses: Margin Call, Low Gross Free, Restricted trading, liquidation - it’s time to top up.
I have stopped seeing orders, what should I look for?
Firstly, please ensure you have available free gross limit
Check limits for special marks, it may be time to top up your account.
If everything checks out and the issue persists, please contact us or your liquidity provider.
Can I disable trading with the liquidity provider?
You may disable trading with a counterparty by unticking the box in the card of the 'Edit' menu. The trading will be stopped while allowing settlements. It will be convenient if you prefer to stop trading while settling, trade with your counterparty for special occasions (e.g. trading during banking hours), or if you wish to halt trading. Please note that you will still be charged the overnight rate.
Can I disable trading of certain coins with my counterparty?
Sure! Click on 'Edit' on the CP's card, select 'Limits per asset'. You can set the limit per asset either in the currency of the asset or in the other currency you prefer. In the case of the latter, we will use the mark-to-market approach to determine the value of the asset. Please keep in mind that if you have an open position nominated in the coin, your counterparty would still be able to trade with it until the moment the position is closed.
Can I restrict trading of the particular markets (trading pairs)?
Yes, whitelisting is a functionality that allows you to restrict trading to an approved list of instruments only. It is disabled by default; in order to enable it, please:
Click 'Assets & Instruments' in the left hand menu
Switch to the 'Whitelisting' tab
Toggle the 'Whitelisting' switch at the top right of the corner. After you have enabled whitelisting for the first time, all instruments become non-whitelisted by default.
In order to whitelist an instrument, you need to switch on the toggle (1) as shown on the screenshot above. There are two tips that can make this process easier:
Click here to collapse the list, hiding the counterparties level of hierarchy. It will make the list much more readable.
Use the Search functionality to search for specific instruments
What does this section regulate?
This section regulates relationships and risk management settings with your Counterparties (takers and other LPs). You may specify the buying power and requirements for the collateral if needed.
Once the KYC is complete, you will need the ID to set up a limit on your end.
What is a counterparty limit?
To start trading with each other, counterparties should set their counterparty limits against each other. It regulates the maximum possible open position with a particular counterparty. Within this limit you may specify: 1. Gross limit regulates the maximum possible open position counterparties may open.
2. Margin requirements restrict trading if the equity that your counterparty has with you exceeds the preset criteria
You may use both of them or gross limit only.
Which limit prevails if they are different?
In any circumstance, the system will always use the smaller value out of all. For example, if you allow your Taker to trade with you for 5 USD and your Taker limit is 10 USD, the system will use the 5 USD as a restriction for the maximum open positions.
What is a gross limit?
The Gross limit is regulating the maximum possible open position counterparty may open. You can make a trade only if you have trading limits set and your free limits are positive.
a. How do you calculate the gross limit? We take the absolute values of everything you see in the positions tab and summarize them using the formula below. Mind you that deposits also utilize the limit.
Formula:
MAX( |SUM(Long positions)|, |SUM(Short positions)| )
What if I set my limit in USD and my counterparty sets it in EUR? We use a mark-to-market type of accounting thus we will recalculate the EUR value back to USD and will use the smaller value out of the two. The same logic applies to limits nominated in crypto.
What is equity?
We summarize the value in USD of your open positions using the formula below: EQUITY = SUM(Positions) Since the base currency of our platform is USD, the assets you hold to maintain the required level of equity would be reevaluated against USD every 15 minutes. For example, if hold BTC as your collateral, its value may fall during the day to accommodate the limit in USD. Thus, the system would require taker to top up the account.
How do I set up a relationship with my taker?
Go to Risk Management .
Press '+ New connection'.
Input the counterparty ID that you receive from your taker and request the connection.
Select the currency of your limit Input the Gross limit (buying power).
Enable margin requirement if you require collateral.
Specify markup if needed. Read more about markup here.
'Enable trading'
Once your taker repeats the action on their end, they would start seeing your quotes.
Which currency I may use for the limits?
The one you use to evaluate your market exposure. Our recommendation is to use fiat currency (USD or EUR) for the limits.
Which limit prevails if they are different?
The smaller limit prevails over the greater one. For example,
Your taker has set a 30 USD of Gross limit however, you have set only 10 USD. The system will use 10 USD as a Gross limit
How do set up a taker if I require holding collateral?
You would need to enable margin requirement either upon set up or by clicking configure on the existing clients’ card. The values are in % and will be calculated from the value of the gross limit.
Here are a few tips on what those fields mean:
Maintenance
Once the equity reaches the specified value in % from the gross limit, you reserve the right to liquidate Takers’ positions
Input the smallest value
Restricted Trading
Once the equity reaches the specified value in % from the gross limit, the Taker will not be able to execute more trades unless the value of their equity improves
Input the value at which you wish to restrict trading
Initial Margin
The collateral that the taker must send to the maker to start trading. Keep in mind that the required % will always remain with you. You will not be able to send a transaction that decreases the % of the initial equity
Input the % of your required collateral for the limit specified in the Gross Limit section above
How do I disable trading with a particular counterparty?
You may disable trading with a counterparty by unticking the box in the card of the Edit menu. The trading will be stopped.
Can I disable trading of certain coins with a particular counterparty?
Click on 'Limits per Asset' on the client’s card. From this screen, you may limit the amount of a particular coin traded as well as stop trading it together.
You can set the limit per asset either in the currency of the asset or in the other currency you prefer. In the case of the latter, we will use the mark-to-market approach to determine the value of the asset.
Please keep in mind that if you have an open position nominated in the coin, your counterparty would still be able to trade with it until the moment the position is closed.
Can I restrict trading of the particular markets (trading pairs)?
Yes, whitelisting is a functionality that allows you to restrict trading to an approved list of instruments only. It is disabled by default; in order to enable it, please:
Click 'Assets & Instruments' in the left hand menu
Switch to the 'Whitelisting' tab
Toggle the 'Whitelisting' switch at the top right of the corner. After you have enabled whitelisting for the first time, all instruments become non-whitelisted by default.
In order to whitelist an instrument, you need to switch on the toggle (1) as shown on the screenshot above. There are two tips that can make this process easier:
Click here to collapse the list, hiding the counterparties level of hierarchy. It will make the list much more readable.
Use the Search functionality to search for specific instruments
How do I disable short sales for a taker?
If you wish to ban short sales of a certain asset, refer to the Assets & Instruments section - Assets tab.
From here, you have 2 options: ban short sales for all of your clients or impose the ban individually.
To set the short sales ban across all clients per asset:
Press "Configure"
Select the Asset or a Class of Assets you wish to impose the ban on
Select the group of clients you will impose the ban on
Toggle the switch for the Short sales ban
Click "Apply"
To set the short sales ban per client:
Press the pencil icon ("Configure")
Select 'Short sales' in the 'Adjust' field
Toggle the switch for the Short sales ban
Click "Apply"
To set the short sales ban across all assets and all customers
Press "Configure"
Select "All Assets"
Select "All Takers" or "All Sub-Accounts" depending on the service you are using. If you are a user of Finery Markets Liquidity Match, you will have to repeat the action twice
Toggle the switch for the Short sales ban
Click "Apply"
What are the Overnights (Long and Short)?
Overnight fees for long and short positions can be set on a per-asset basis, or for all assets, in the same 'Assets' tab. Please refer to Non-deliverable Trading for more information.
How would I liquidate the taker if their equity has fallen below the specified parameter?
Please contact us through Instant Messenger or through [email protected].
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