How Is the Margin Requirement Calculated for a Volatile Asset like Bitcoin Futures?
Margin for volatile assets like Bitcoin futures is calculated using sophisticated risk models, such as the Standard Portfolio Analysis of Risk (SPAN) system. The calculation accounts for the high historical volatility and potential extreme price movements of the underlying asset.
Clearing houses set higher margin percentages for crypto to protect against rapid, large swings, ensuring adequate coverage.
Glossar
Historical Volatility Data
Measurement ⎊ Historical volatility data, within cryptocurrency markets and options trading, represents a statistical inference of price fluctuations over a specified past period, typically expressed as an annualized standard deviation.
Volatile Asset
Instability ⎊ A volatile asset, within cryptocurrency, options, and derivatives, exhibits a pronounced tendency toward rapid and substantial price fluctuations, exceeding the norms observed in more established financial instruments.
Standard Portfolio Analysis of Risk
Quantification ⎊ Standard Portfolio Analysis of Risk, within cryptocurrency and derivatives, extends traditional asset allocation principles to encompass the unique characteristics of these markets, demanding a nuanced approach to risk measurement.