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How Does a Multi-Tiered Margin System Reduce Systemic Risk?

A multi-tiered margin system reduces systemic risk by imposing higher initial and maintenance margin requirements on larger position sizes. This prevents a single large trader from taking on excessive, unmanageable risk that could overwhelm the insurance fund if liquidated.

By requiring more collateral for bigger trades, the system creates a larger buffer against potential losses, thus protecting the entire market.

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