What Is the Role of Collateral Management in Crypto Derivatives Trading?
Collateral management is vital as it mitigates counterparty risk in derivatives. Traders must post collateral (margin) to cover potential losses on their positions.
Given the high volatility of crypto assets, collateral systems must use real-time valuation, dynamic margin calls, and robust liquidation mechanisms to prevent a cascading default, ensuring the integrity of the clearing system.
Glossar
Collateral Management
RiskFunction ⎊ Collateral Management encompasses the systematic oversight, valuation, and maintenance of assets pledged to secure obligations, particularly crucial in leveraged derivatives trading and decentralized finance lending.
Initial Margin
Collateral ⎊ Initial margin represents the equity a trader must deposit with a broker or exchange as a good faith commitment to cover potential losses arising from derivative positions, notably within cryptocurrency markets.
Maintenance Margin
Collateral ⎊ Within cryptocurrency derivatives and options trading, the maintenance margin represents the minimum equity a trader must maintain in their account to cover potential losses.