How Does a Sudden Change in Volatility Affect the Margin Ratio?
A sudden increase in volatility, especially an adverse price move, will cause the position's unrealized loss to grow rapidly, which quickly reduces the margin balance. This causes the margin ratio to drop sharply towards 100%, increasing the risk of liquidation.
Traders must be prepared to add margin or close the position quickly during high volatility.
Glossar
Margin Ratio
Threshold ⎊ The specific ratio, expressed as a percentage or fraction, comparing the current margin balance to the required margin level for a given position, which dictates the risk status of the account.
Sudden Change
Disruption ⎊ The term "Sudden Change" within cryptocurrency, options trading, and financial derivatives signifies an abrupt and substantial deviation from established market trends or anticipated price movements.