USDC collateral
ETH is at $3,000. You go long $3,000 of ETH with $600 of margin (5x).
The payoff is linear: a move up pays the same amount that the same move down costs.
ETH collateral on ETH
The same trade with ETH collateral: 1 ETH of size and 0.2 ETH of margin.
The long’s gains arrive when ETH is worth more, and its losses when ETH is worth less, so a 10% move up pays more dollars than a 10% move down costs. A short gets the mirror image: +$270 if ETH falls 10%, −$330 if it rises 10%. Auto funding charges longs a variance term for this. See Fees and funding.
Your margin is ETH too, so its dollar value also moves with ETH. The 0.2 ETH of margin above is worth $660 at $3,300 and $540 at $2,700.
ETH collateral on other markets
You go long BTC with ETH collateral: 1 ETH of size, $3,000 at entry. BTC rises 10%, so your PnL is +0.1 ETH whatever ETH does. Its dollar value depends on the ETH price at close:
When an asset tends to move with ETH, a long’s gains tend to arrive in more valuable ETH and its losses in less valuable ETH, as on the ETH market above. Auto funding adds a covariance term for this. When the asset tends to move against ETH, the term can be negative.
Funding and the cap
- Funding is charged on notional in your collateral and settled into your PnL when the position closes. At 8% a year, a $3,000 position pays about $0.66 a day. Accrued funding also counts toward liquidation.
- The cap. PnL can never exceed the matcher’s margin. See Max profit.
- Fees and gas are separate from PnL. See Fees and funding.