How Does a Liquidation under Cross Margin Affect the Initial Margin of Other Positions?
A liquidation under Cross Margin uses the entire account balance as collateral. When one position is liquidated, the funds used to cover the loss are drawn from the shared margin pool.
This reduction in the shared pool effectively reduces the available margin for all other open positions, potentially bringing their individual equity closer to their liquidation price. It increases the risk of a cascade of liquidations across the entire account.
Glossar
Cross Margin Liquidation
Mechanism ⎊ Cross margin liquidation represents a risk management protocol employed by derivative exchanges, notably within cryptocurrency markets, where collateral from an entire account is utilized to cover margin requirements across multiple open positions.
Cross Margin
Leverage ⎊ Cross margin, within cryptocurrency derivatives and options trading, fundamentally involves utilizing a single margin pool to collateralize positions across multiple instruments.