Borrow Capacity
Borrow Capacity is a metric targeting a maximum amount of borrow that is feasible considering a trading firm's risk profile. It evaluates strategy and all factors that influence the X-Margin credit score, including track record, operational policies, and financials. It may not indicate a trading firm's borrow demand, which is often different. Note that increased leverage does increase risk, and borrow capacity does not always increase or decrease in a linear fashion.
Using the Credit Score, Liability, and Portfolio Equity, X-Margin calculates a real-time Borrow Capacity for trading firms. Borrow Capacity is a metric which trading firms are more comfortable displaying publicly, and therefore a great distillation of credit information which can be used to inform DeFi protocols.
The Upper Limit of the Maximum Leverage curve considers the trading firm strategy and current leverage. X-Margin uses a bounded logarithmic curve where Credit Score Percentile is the primary input.
Credit Score Percentile = (Credit Score - Portfolio Leverage Score) / 890
The output is Maximum Leverage. Conceptually, Due Diligence, Financials, Net Equity, and Market Risk behaviors determine the appropriate overall leverage a trading firm can feasibly absorb.
X-Margin subsequently multiplies Portfolio Equity by the Maximum Leverage ratio and subtracts current Liabilities, resulting in a net USD Borrow Capacity.
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