What Is the Margin Tier System in Relation to Risk Limits?
The margin tier system is the mechanism by which risk limits are enforced. It divides position sizes into different tiers.
As a trader's open position moves into a higher tier (larger size), the required initial and maintenance margin rates increase, and the maximum allowed leverage decreases. This tiered approach manages risk dynamically based on position size.
Glossar
Margin Tier System
Framework ⎊ The Margin Tier System, prevalent across cryptocurrency exchanges, options platforms, and derivatives markets, establishes a tiered structure dictating permissible leverage based on collateral levels and risk profiles.
Tier System
Structure ⎊ Describes the hierarchical categorization of market participants, often based on volume, capital commitment, or compliance adherence, for access or fee purposes.
Risk Limits
Constraint ⎊ Risk limits are predefined parameters established by exchanges or individual traders to restrict potential financial exposure.