How Is the ‘Margin Requirement’ Calculated for a Token Futures Contract?
The margin requirement is the collateral a trader must deposit to cover potential losses. It is calculated as a percentage of the total contract value.
Exchanges use volatility and liquidity to set the 'initial margin' (required to open a position) and the 'maintenance margin' (minimum required to keep it open). Highly volatile tokens will have higher margin requirements to protect the clearing house from default risk.
Glossar
Collateral
Asset ⎊ Collateral, within the domain of crypto derivatives and decentralized finance, refers to the digital asset or assets pledged by a market participant to secure a loan or to cover potential losses on a leveraged trading position.
Volatility
Measurement ⎊ Volatility, in quantitative finance, is the statistical measurement of the dispersion of returns for a given financial asset, typically quantified by the annualized standard deviation of its price movements.
Margin Requirements
Collateral ⎊ Margin requirements represent the equity a trader must deposit with a broker or exchange as a good faith measure, securing potential losses arising from leveraged positions within cryptocurrency, options, and derivative markets.
Liquidity
Depth ⎊ Liquidity, in the context of financial markets, is the degree to which an asset or derivative contract can be bought or sold quickly without significantly impacting its price, primarily measured by the depth of the order book.
Margin Requirement
Collateral ⎊ Within cryptocurrency derivatives and options trading, collateral represents the assets pledged by a trader to cover potential losses arising from leveraged positions.
Clearing House
Role ⎊ The Clearing House acts as a central counterparty (CCP) in traditional and centralized crypto derivatives markets, interposing itself between buyers and sellers to guarantee the performance of the contract.