What Is the ‘Margin Requirement’ Set by a Clearing House?
The margin requirement set by a clearing house is the amount of collateral that a clearing member must deposit and maintain with the clearing house. This collateral is intended to cover the potential losses that could arise from the member's or their client's derivative positions.
The margin is calculated daily based on the volatility and size of the positions. It acts as a performance bond, ensuring that the clearing house has a financial buffer to absorb losses in the event of a member's default.
Glossar
Clearing House
Settlement ⎊ A clearing house, within cryptocurrency and derivatives markets, functions as an intermediary between buyers and sellers, mitigating counterparty risk through a process of novation ⎊ replacing original trade agreements with new ones directly with the clearing house.
Margin Requirement
Collateralization Standard ⎊ Margin Requirement is the minimum amount of collateral, expressed as a percentage of the notional value, that a trader must deposit to open or maintain a leveraged derivatives position, ensuring the exchange has a buffer against adverse price movements.