How Is the Initial Margin Level Determined by the Exchange?
The exchange's clearing house determines the initial margin based on the volatility and potential risk of the underlying asset and the contract itself. They use risk models, such as SPAN, to calculate the maximum potential loss over a specific period, typically a day, with a high degree of confidence.
The goal is to ensure the CCP is protected from potential default losses.
Glossar
Initial Margin Level
Definition ⎊ Initial margin level represents the minimum amount of collateral, typically cash or eligible assets, that a trader must deposit and maintain in their account to open a new leveraged position in derivatives.
Margin Calculation Methods
Collateral ⎊ Margin calculation methods within cryptocurrency derivatives, options trading, and financial derivatives fundamentally address the risk exposure associated with leveraged positions, requiring an assessment of potential losses.
Centralized Crypto Exchanges
Custody ⎊ Centralized Crypto Exchanges function as custodians of digital assets, offering a regulated framework for storage and transfer, a critical component for institutional participation in cryptocurrency markets.