How Does the Frequency of Variation Margin Calls Impact Risk Management?
A higher frequency of variation margin calls, such as intraday instead of just end-of-day, significantly enhances risk management. It reduces the amount of credit exposure a clearing house has to its members by ensuring that losses are covered more quickly.
In volatile markets, prices can move substantially during a single day, and intraday margin calls prevent these losses from accumulating. This reduces the risk that a member's initial margin will be insufficient to cover losses in the event of a default.
Glossar
Variation Margin Calls
Trigger ⎊ Variation Margin Calls represent a dynamic risk management mechanism integral to derivatives exchanges, particularly within cryptocurrency markets, functioning as a demand for funds to cover potential losses arising from adverse price movements.
Intraday Margin
Mechanism ⎊ Intraday margin represents the variable collateral requirement during a single trading day, particularly relevant in cryptocurrency derivatives and options where price volatility is pronounced.