How Do Different Margin Tiers (E.g. Tier 1, Tier 2) Influence the Maintenance Margin Rate?
Margin tiers are a risk management tool that segments traders based on their position size. Larger positions (higher tiers) are subject to progressively higher maintenance margin rates.
This is because larger positions pose a greater systemic risk to the exchange's insurance fund and liquidity. By increasing the margin requirement for large traders, the exchange ensures they maintain a larger collateral buffer, making them less likely to incur a loss that the exchange must absorb.
Glossar
Systemic Risk
Contagion ⎊ Systemic risk within cryptocurrency, options trading, and financial derivatives manifests primarily through interconnectedness, where the failure of one entity can propagate rapidly across the system.
Risk Management
Exposure ⎊ Within cryptocurrency derivatives and options trading, exposure represents the aggregate risk arising from positions predicated on anticipated price movements.
Higher Maintenance Margin
Requirement ⎊ A higher maintenance margin represents an elevated minimum equity threshold required to keep a leveraged position active.