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 which influence the X-Margin credit score, including borrowing 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 linearly.

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 - Net Liability Factor) / 850

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.

Factor	Ratio	High Ratio	Upper Limit	Lower Limit	Slope
Maximum Leverage	Total Credit Score - Portfolio Leverage Score	Good	2 - 16	0	8

X-Margin subsequently multiplies Portfolio Equity by the Maximum Leverage ratio and subtracts Liability, resulting in a USD Borrow Capacity.