How Does the Risk Limit System Affect Institutional Traders?
The risk limit system significantly affects institutional traders by limiting the maximum size of the position they can open with high leverage. To trade very large positions, they are forced to use significantly lower leverage and provide more margin.
This ensures that their large positions do not pose a systemic risk to the insurance fund and the exchange's solvency.
Glossar
Insurance Fund
Fund ⎊ In the context of cryptocurrency derivatives, options trading, and financial engineering, an Insurance Fund represents a dedicated pool of assets designed to mitigate systemic risk within a specific protocol or trading environment.
Systemic Risk
Contagion ⎊ Systemic risk within cryptocurrency, options trading, and financial derivatives manifests primarily through interconnectedness, where the failure of one entity can propagate rapidly across the system.
Institutional Traders
Capital ⎊ Institutional traders, within cryptocurrency derivatives and options markets, represent a significant source of liquidity and price discovery, often deploying substantial capital across diverse strategies.
Leverage
Amplification ⎊ Leverage, within cryptocurrency, options, and derivatives, represents the utilization of borrowed capital to increase the potential return of an investment, fundamentally altering risk-reward profiles.
Risk Limit
Constraint ⎊ A risk limit defines the maximum acceptable level of potential loss or adverse price movement that a trading position or the entire portfolio is permitted to sustain before mandatory intervention is triggered.