AFTER THIS LESSON
You will be able to
- Build a risk map before entry
- Define margin buffer and divergence limit
- Prepare for exchange failure
Margin and liquidation
The two legs may offset economically, but margin is held separately on each exchange. When the spread widens, one venue can liquidate a leg before the other offsets it.
- Check liquidation price for both legs.
- Keep a separate margin buffer.
- Do not treat high leverage as safe merely because of the hedge.
Contract and exchange risk
Beyond market risk, contract changes, maintenance, ADL, trading halts, delisting, API outage, withdrawal suspension, or account inaccessibility can occur.
- Review emergency settlement rules.
- Do not hold all capital on one venue.
- Account for stablecoin and counterparty risk.
Predefined limits
Before entry, record maximum size, leverage, acceptable spread widening, holding time, minimum margin buffer, and immediate-exit conditions.
- A limit must be measurable rather than “I will see what happens.”
- A delisting or trading halt takes priority over target ROI.
PRACTICE
The spread doubles
Write down what happens to margin on each leg, which level triggers reduction, and what to do if one exchange enters maintenance.
? Show answer
Answer: When the spread widens, profit on one position does not protect the other exchange’s margin from liquidation; buffers must be monitored separately. Reduction starts at a predefined divergence or margin limit. If one exchange is unavailable, follow the contingency plan on the accessible venue and do not increase risk while waiting for recovery.
Lesson checklist
- Margin buffer is calculated separately for both exchanges.
- I have a measurable divergence limit.
- There is a plan for one venue becoming unavailable.
Common mistakes
- Treating combined PnL as sufficient protection from liquidation.
- Ignoring delisting or maintenance warnings.
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