Does a Higher Volatility in the Underlying Asset Require a Higher Margin?
Yes, a higher volatility in the underlying asset almost always requires a higher initial and maintenance margin. Margin is designed to cover potential losses, and higher volatility means a greater potential for large, rapid price movements.
To maintain the clearinghouse's financial integrity, the margin must be increased to provide a larger financial buffer against these more extreme possible losses.
Glossar
Higher Volatility
Characteristic ⎊ Higher Volatility is a defining characteristic of the cryptocurrency market, representing a significantly elevated measure of the dispersion of asset returns around the mean, compared to traditional financial instruments.
Financial Buffer
Reserves ⎊ A financial buffer, within the context of cryptocurrency, options trading, and derivatives, represents a strategically allocated pool of capital designed to mitigate adverse market movements and operational risks.