How Does Volatility Affect the Required Maintenance Margin?
High market volatility generally leads to an increase in the required Maintenance Margin. Exchanges must ensure that they have enough collateral to absorb potential losses during rapid price swings.
Increased volatility means a higher chance of a quick, adverse price move that could lead to a deficit. Therefore, the exchange's risk engine will adjust the maintenance margin upward to create a larger buffer, making liquidations happen sooner.
Glossar
Market Volatility
Dispersion ⎊ Market volatility within cryptocurrency, options, and derivatives contexts represents the magnitude of price fluctuations over a defined period, quantified typically by standard deviation or variance of logarithmic returns.
Maintenance Margin
Collateral ⎊ Within cryptocurrency derivatives and options trading, the maintenance margin represents the minimum equity a trader must maintain in their account to cover potential losses.