Explain How a Lack of Finality Could Lead to a ‘Margin Call’ Failure.
A margin call occurs when the collateral (margin) in a derivatives account falls below a required maintenance level, prompting the trader to deposit more funds. If the underlying blockchain lacks finality, the transaction used to deposit the additional margin could be reversed or invalidated by a chain re-organization.
This failure to secure the margin deposit could lead to the forced liquidation of the trader's position, even if they attempted to meet the call.
Glossar
Forced Liquidation
Liquidation ⎊ Within cryptocurrency derivatives, options trading, and financial derivatives, liquidation represents the involuntary closure of a leveraged position due to margin deficiencies.
Margin Call
Trigger ⎊ A margin call in cryptocurrency, options, and derivatives markets represents a broker’s demand for additional funds to bring an account back to the minimum required margin.
Margin Deposit
Collateral ⎊ A margin deposit represents a quantified commitment of capital, functioning as security to facilitate leveraged positions within cryptocurrency derivatives markets, options contracts, and broader financial instruments.
Derivatives Account
Function ⎊ A derivatives account serves as the dedicated financial instrument for trading futures, options, and other complex financial products on a centralized or decentralized exchange.
Lack of Finality
Finality ⎊ Lack of Finality describes the state in a probabilistic consensus system where a confirmed transaction remains theoretically susceptible to being undone if a longer, competing chain of blocks is successfully mined.