How Does the Time-to-Settlement Affect the Volatility Caused by Margin Calls?
A shorter time-to-settlement (e.g. T+0 in crypto vs.
T+2 in traditional finance) generally reduces the volatility caused by margin calls. Faster settlement means losses are recognized and margin is adjusted more quickly, leading to immediate, smaller liquidations rather than a build-up of large, delayed losses.
However, the speed also means the forced selling pressure is applied instantly, which can still create rapid short-term volatility spikes.
Glossar
Perpetual Futures Contracts
Structure ⎊ Perpetual futures contracts are a unique type of derivative in the cryptocurrency market that mirrors a traditional futures contract but lacks a fixed expiration date.
Intraday Margin Calls
Trigger ⎊ Intraday margin calls within cryptocurrency derivatives represent a risk management protocol initiated when a trader’s account equity falls below a predetermined maintenance margin level during a single trading day.
Forced Selling Pressure
Liquidation ⎊ Within cryptocurrency markets and derivatives, forced selling pressure arises from margin calls, liquidations, or regulatory mandates compelling the rapid disposal of assets.