Curriculum·R402 Margin and Liquidation Mathematics·about 42 min
Margin mechanics
By the end of this lesson you can
- →Define initial, maintenance and variation margin, and state which one triggers a close
- →Compute the buffer between initial and maintenance margin as a percentage of notional
- →Explain why a margin call demands cash at the worst possible moment
- →Show why margin posted per counterparty is not margin posted against your position
Senior · enrolled learners
This lesson opens with Archegos Capital Management, March 2021.
- What happened
- Archegos was a family office holding highly concentrated equity exposure through total return swaps rather than through shares. Because the swaps sat on bank balance sheets, the positions carried no public disclosure and each prime broker saw only the slice it had written. Reported leverage was around five to one. Prosecutors later alleged that Archegos misled its banks repeatedly in the preceding six months about its liquidity and how concentrated the portfolio was. When the underlying stocks fell in March 2021 the firm could not meet a cascade of margin calls, positions approaching $30B were liquidated, and counterparties lost roughly $10B in total, of which Credit Suisse alone reported about $5.5B. Bill Hwang was convicted in 2024.
- The decision point
- Every individual margin arrangement was adequate against the slice the broker holding it could see. None of them was adequate against the position that actually existed, because no counterparty held the aggregate and the instrument was chosen so that nobody would. Margin is sized against a position. If the position is spread across parties who each see a fraction, the margin protects the fraction and nothing protects the whole.
- Recorded loss
- $10,000,000,000
What you will be able to answer
- →What are the three margins?
- →What is the buffer?
- →Why is a margin call badly timed by construction?
- →What did Archegos show about margin?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.bdo.co.uk/en-gb/insights/industries/financial-services/credit-suisse-and-the-archegos-collapse-lessons-in-risk-management-and-governance
- https://en.wikipedia.org/wiki/Bill_Hwang
- https://www.investing.com/news/stock-market-news/archegos-tried-to-lull-banks-before-36-billion-firm-collapsed--us-prosecutors-2876654
- https://www.sec.gov/Archives/edgar/data/1053092/000137036821000064/a210729-ex992.htm
Confidence high·Volatility low·Reviewed 2026-08-07·Owner unassigned
Contested
Reported figures for Archegos vary widely by what is counted: total counterparty losses around $10B, Credit Suisse around $5.5B, positions liquidated approaching $30B, and gross exposure figures ranging far higher depending on whether notional or net is quoted. Leverage is reported around five to one. Only the aggregate counterparty loss and the structural point are load bearing here.
This lesson uses an equities incident deliberately. The margin mechanics are identical and the case is the clearest documented demonstration that margin is sized against what a counterparty can see. J304 owns collateralised borrowing on-chain and R402-02 derives the liquidation price. Keep the split.
Maintenance margin percentages differ by venue, by asset and by position size, with tiered schedules that raise the requirement as notional grows. The 0.5 percent used in part two is a stated input for the arithmetic and is not a universal figure.