How Is the Margin Level Typically Determined by an Exchange?

Margin levels are determined by the exchange's risk management department using sophisticated quantitative models that analyze historical and implied volatility of the underlying asset. The calculation aims to cover potential losses at a high confidence level (e.g.

99% of possible price movements over a specific time horizon). The higher the volatility, the higher the required margin.

What Is the Difference between Initial Margin and Variation Margin?
What Is the Impact of Socialized Losses on Trader Confidence and Market Fairness?
How Does the Concept of ‘Value at Risk’ (VaR) Relate to Margin Setting?
What Statistical Metric Can Be Used to Determine the Optimal TWAP Interval?
How Is the Initial Margin Level Determined by the Exchange?
What Is the Concept of ‘Statistical Arbitrage’ in Relation to TWAP and Spot Prices?
What Is a ‘Lookback Period’ in Historical Volatility Margin Models?
How Is Initial Margin Calculated for a Derivatives Contract?

Glossar