How Does an Exchange Prevent Cascading Liquidations during High Volatility? ⎊ Path

How Does an Exchange Prevent Cascading Liquidations during High Volatility?

Exchanges employ several mechanisms to mitigate cascading liquidations. These include using the Index Price for liquidation triggers instead of a single market's price.

They also use a Mark Price based on the Index Price to calculate margin requirements. Furthermore, a well-funded insurance fund absorbs losses, and in extreme cases, a mechanism like Auto-Deleveraging (ADL) is used as a last resort.

What Is the Concept of “Socialized Losses” in Derivatives Trading?

What Mechanisms Do Centralized Exchanges (CEXs) Use to Manage Liquidation Risk and Prevent Platform Insolvency?

Explain the Concept of “Auto-Deleveraging” (ADL) in Futures Markets

How Do Exchanges Prevent Cascading Liquidations during High Volatility?

What Is ‘Auto-Deleveraging’ (ADL) and How Does the Insurance Fund Mitigate It?

What Happens If the Insurance Fund Runs out of Capital?

What Is Auto-Deleveraging and How Does It Relate to the Insurance Fund?

Describe the Function and Importance of a Derivatives exchange’S’Insurance Fund’