How Do Smart Contracts Facilitate Automated Margin Calls in Volatile Derivatives Markets?

Smart contracts facilitate automated margin calls by continuously monitoring the value of collateral against the exposure of a derivatives position in real time. The terms of the margin agreement, including collateral thresholds, are coded into the smart contract.

If the market value of the collateral falls below the required level due to market volatility, the smart contract automatically triggers a margin call, requesting additional collateral from the relevant party. This process is instantaneous, reducing the risk of default and eliminating manual delays.