What Is the Primary Purpose of the Buffer between Initial and Maintenance Margin?
The primary purpose of the buffer is to provide a safety zone for the trader against normal market volatility. This buffer, which is the difference between the initial margin and the maintenance margin, allows the position to absorb a degree of adverse price movement without immediately triggering a liquidation.
It gives the trader time to add margin or close the position before the liquidation engine is activated.
Glossar
Adverse Price Movement
Exposure ⎊ Adverse price movement within cryptocurrency derivatives represents a deviation from anticipated directional forecasts, impacting portfolio valuations and risk parameters.
Primary Purpose
Intent ⎊ The primary purpose underpinning cryptocurrency derivatives, options trading, and related financial instruments revolves around risk management and speculation, often intertwined.
Buffer
Mitigation ⎊ A buffer, within cryptocurrency and financial derivatives, represents a designated capital reserve intended to absorb potential losses stemming from adverse price movements or counterparty risk.