This glossary provides definitions and explanations of key terms related to margin trading, perpetual futures, Borrow and Lend, and basic trading concepts on the Backpack platform.
It is designed to help you understand your account, trading requirements, and risk management strategies.
A
Account Notional Summary
An overview of your account status, showing the relationship between your assets, liabilities, and overall equity. It helps you understand your overall financial position, including how much you own, how much you owe, and your net worth on the platform.
- Assets: Total value of holdings across various cryptocurrencies.
- Liabilities: Total value of borrowed assets.
- Equity: Net difference between assets and liabilities.
Assets
The total value of all cryptocurrencies and assets you hold in your account including both collateral assets and tradable assets.
Some assets can be used as collateral for margin trading. The collateral value may be adjusted based on a “haircut” percentage specific to each asset.
Auto Lend
A feature that automatically lends your available balance in the borrow/lending pool. It maximizes your capital efficiency by earning interest on your idle assets while keeping them available as collateral for trading.
Available Equity
The amount of equity available for trading or withdrawal after covering liabilities. It represents the portion of your equity that is free to be used for new margin positions or for withdrawals.
APY (Annual Percentage Yield)
The annual rate of return earned on an investment, taking into account the effect of compounding interest. It indicates the potential earnings from lending assets on the platform over a year.
B
Backstop Liquidity Program (BLP)
A program that allows select clients to participate in filling off-market liquidation orders at a discount for spot margin borrows and futures positions. BLP provides liquidity during liquidation events, helping maintain market stability and offering participants the opportunity to purchase assets at discounted prices.
- Backstop Liquidity Providers (BLPs) are an important part of the liquidation waterfall who help provide backstop liquidity and take on losing positions when significant adverse market movements occur.
Balance Sheet Summary
A detailed view of your assets, liabilities, and equity which offers insight into your financial standing and risk exposure.
- Assets: Lists assets held and their respective values.
- Liabilities: Lists total borrowings.
- Unsettled Assets: Reflects assets in the process of settlement.
Borrow Quantity
The quantity of assets you have borrowed for trading purposes which indicates your obligations and exposure in borrowed assets.
Borrowing
The act of obtaining assets from the platform to trade or invest, which must be repaid later. Borrowed assets can be used to increase trading positions through leverage.
Borrow Lending Market
A marketplace on the platform where users can lend assets to earn interest or borrow assets for trading. Borrow Lending Markets facilitate the borrowing and lending of cryptocurrencies which optimizes capital efficiency.
Borrow-Lending Pool
The aggregated funds provided by lenders, available for borrowers to access. They support the platform’s margin system by supplying liquidity for borrowing activities.
C
Collateral
Assets pledged to secure a loan or margin position. Collateral is used to cover potential losses in margin trading.
Collateral value is subject to a 'haircut' which is a percentage reduction applied to an asset's value when calculating its collateral value.
Conditional Order
An order that is executed only when certain predefined conditions are met. Conditional orders help automate trading strategies and manage risk.
- Stop Order: Executes when the market reaches a specified stop price.
- Trailing Stop Order: Follows the market price at a set distance.
Continuously Realized PnL
A setting that allows users to continuously realize their profit and loss (PnL) to avoid borrow-lend rates.
By default, PnL is unrealized; enabling this setting helps manage interest costs associated with unrealized gains or losses.
Current Margin Fraction (MF)
The ratio of your equity to your total notional position. Current Margin Fraction indicates your leverage level and risk of liquidation.
E
Equity
The net difference between your assets and liabilities.
- Equity = Assest - Liabilities
This formular is critical for calculating margin requirements and assessing liquidation risk.
Earn Yield on Collateral
The ability to earn interest on 100% of your collateral while using it to maintain futures positions. This enhances capital efficiency by generating returns on assets that are otherwise idle.
F
Fiat Currency
Government-issued currency that is not backed by a physical commodity. For example USD, EUR, JPY, YUAN, etc.
Futures Contracts
Agreements to buy or sell an asset at a predetermined price at a specific future date. Futures contracts are used for hedging or speculating on future price movements of an asset.
Backpack offers Interest Bearing futures which allow you to earn yield on your unrealized gains.
Funding Payments
Periodic payments made between traders in perpetual futures to keep contract prices aligned with the underlying asset price. If you hold a position at the time of funding, you may pay or receive funding fees.
G
Going Long / Going Short
Going Long means buying an asset with the expectation that it's value will increase. Profits are made if the asset's price rises.
Going Short means selling an asset you don't own with th expectation of buying it back at a lower price. Profits are made if the asset's price decreases.
H
Haircut
A reduction applied to the market value of an asset when determining its collateral value. It accounts for asset volatility and liquidity.
The higher a haircut is, the less the collateral value.
I
Initial Margin Requirement (IMF)
The minimum amount of collateral required to open a new position. IMF ensures that you have sufficient collateral to cover potential losses from new positions.
Interest Bearing Futures
A margin system that allows you to earn yield on your collateral and unrealized gains while trading futures.
- Earn interest on 100% of your collateral.
- Earn interest on your unrealized gains.
- Use a single cross-margined account for multiple assets.
Interest Rate Curve
A model that determines interest rates based on the utilization rate of the borrow/lending pool. As utilization increases, interest rates adjust to control borrowing and lending activities.
K
KYC (Know Your Customer)
A process to verify the identity of clients to prevent fraud and comply with legal requirements. KYC enhances security and compliance on Backpack.
L
Leverage
The use of borrowed funds to increase potential returns on an investment. Leverage allows you to control larger positions than your actual account balance would permit.
Using Leverage comes with risk which amplifies both potential gains and losses.
Liabilities
The total value of assets you have borrowed. Liabilities are obligations that must be repaid; impacts net equity and margin calculations.
Limit Order
An order to buy or sell an asset at a specified price or better. Limit Orders provide control over the execution price but may not be filled if the market doesn’t reach the specified price.
Liquidity
The ease with which an asset can be bought or sold in the market without affecting its price. High liquidity means trades can be executed quickly at stable prices.
Liquidation
The process of closing your positions to cover margin shortfalls. Liquidations occur when the margin fraction falls below the Maintenance Margin Requirement (MMF).
Positions are automatically closed to reduce risk to you and the platform.
M
Maintenance Margin Requirement (MMF)
The minimum amount of equity required to keep positions open. Falling below MMF can trigger liquidation.
Margin Call
A notification that your margin level has fallen below required levels. You must deposit more funds or close positions to restore required margin levels.
Margin Fraction (MF)
The ratio of your equity to your total position size. Margin Factor is a key indicator of leverage and risk level.
Margin Trading
Trading with borrowed funds to increase potential returns. Margin Trading allows you to open positions larger than your account balance would allow.
It amplifies both potential gains and losses.
Market Order
An order to buy or sell an asset immediately at the best available current price. It guarantees execution but not the execution price.
N
Net Equity Locked
The amount of equity currently locked as collateral to maintain open positions. It reflects the collateral required to meet margin obligations.
Net Equity Available
The amount of equity available for trading or withdrawal after covering liabilities. It represents a portion of equity free for new positions or withdrawals.
Notional Value
The total value of a leveraged position. Notional Value is calculated by multiplying the position size by the asset’s market price.
O
Open Exposure
The amount of each asset being used in margin trading. It reflects current positions and associated risks.
Order Types
Different ways to execute trades based on price and time conditions.
- Market Order
- Limit Order
- Conditional Order
P
PnL (Profit and Loss)
The gain or loss realized from trading activities, it impacts your equity and margin levels.
- Realized PnL: Profit or loss from closed positions.
- Unrealized PnL: Profit or loss from open positions.
R
RFQ (Request for Quote)
A system where traders can request price quotes for large orders. RFQs facilitate large trades with potentially better pricing and reduced market impact.
Risk Management
Strategies to minimize potential losses in trading.
- Diversification: Spreading investments across various assets.
- Stop-Loss Orders: Automatic orders to sell an asset when it reaches a certain price.
- Monitoring Margin Levels: Regularly checking equity and margin requirements.
S
Settlement
The process of exchanging the asset and payment to finalize a trade. In futures trading, settlement may involve cash payments or physical delivery of the asset.
Settlements Borrowing
A feature that allows you to automatically borrow USDC whenever you owe USDC to the system instead of having your non-USDC collateral converted.
It provides flexibility in managing settlements and avoids unwanted asset conversions.
Slippage
The difference between the expected price of a trade and the price at which it is executed. Slippage occurs in volatile markets or with large orders.
Spot Margin Trading
Trading spot assets using borrowed funds. It enhances trading capabilities by allowing you to leverage your positions in the spot market.
Spread
The difference between the bid and ask prices. Spread reflects market liquidity and transaction costs.
T
Trigger Price
The specific price at which a conditional order is activated and sent to the market. Trigger Price is used in stop orders and other conditional orders to automate trading strategies.
U
Unrealized PnL
Profit or loss from open positions that has not yet been realized through a transaction. Unrealized PnL affects your margin levels and can be used as collateral if the platform allows.
Unsettled Assets
Assets that are in the process of settlement from recent trades. Funds from trades that are pending finalization and not yet available for withdrawal or trading.
USDC Reconciliation
The process of ensuring proper allocation of USDC funds once trades are settled.
Utilization Rate
The percentage of the borrow/lending pool currently being utilized by borrowers. Utilization Rate affects interest rates; higher utilization rates typically lead to higher interest rates.
Understanding Liquidation
- Normal Trading: When your Margin Fraction (MF) is above the Initial Margin Requirement (IMF), you can trade freely and open new positions.
- Restricted Trading: If your MF falls between the IMF and the Maintenance Margin Requirement (MMF), you cannot open new positions but can reduce existing ones.
- Liquidation Phase: If your MF drops below the MMF, the system will begin liquidating positions to restore margin requirements.
Do you have questions or require further information?
Click the red Live Chat button in the lower right of your screen or contact us via email at: support@backpack.exchange
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