# Initial Margin

# Purpose

Initial margin in the Nekuti Matching Engine serves as a pre-trade risk control mechanism. Its primary function is to ensure that when an order executes, the account maintains sufficient margin capacity at the execution price point, preventing over-leveraged positions.

# Key Concepts

# Pre-Trade Validation

Initial margin is evaluated once at order placement time. This check must pass before the order enters the order book. The validation considers:

The initial margin requirement, determined by the Instrument and the account's configured Risk Limit
Existing positions and unrealized losses
Fees at the given customer's Fee Tier
The latest Marks
Currently resting orders on the account
The parameters of the new order being placed
The structure of the order book
The deposited balance in the account

Initial margin requirements are more conservative than maintenance margin requirements. This creates a buffer between leverage at execution and potential liquidation points. For detailed maintenance margin calculations, refer to the liquidation documentation.

Both open positions and resting orders continuously reserve a portion of the account's margin currency balance. This reservation ensures the account maintains adequate collateral for potential executions.

# Capital Efficiency

A distinctive feature of Nekuti's initial margin system is its incorporation of price impact analysis during order execution. This approach:

Calculates margin requirements based on the expected execution price rather than just the order price
Enhances capital efficiency by providing a more accurate price for the margin calculation
Accounts for order book depth in large orders that may affect multiple price levels

# Insurance Fund

The insurance fund is exempt from initial margin requirements, allowing it to place orders without margin constraints.

The following sections will provide detailed calculations, examples, and specific implementation guidelines for each component of the initial margin system.