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.

Why Does an Exchange Require a Higher Margin for a Larger Position?
What Is the Role of the ‘Risk Limit’ in Preventing Large ADL Events?
Why Do Exchanges Use a ‘Tiered Margin System’?
Does the Margin Tier Affect the Maximum Available Leverage?
What Is the Concept of “Tiers” in a Tiered Margin System?
Does the Market Maker’s Capital Base Influence the Required Minimum RFQ Size?
How Does PNL Calculation Relate to Position Sizing?
Does the Maintenance Margin Percentage Change Based on the Contract’s Leverage Level?