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What Role Does Liquidity Play in Setting Margin for Crypto Futures?

Low liquidity increases liquidation time and market impact, mandating higher initial margin to cover the larger potential price slippage (market impact cost).
Greeks.Live23.11.25

What Role Does Liquidity Play in Setting Margin for Crypto Futures?

Liquidity is crucial because low liquidity increases the time and cost required for a clearing house to liquidate a defaulted position without causing significant market impact. Lower liquidity mandates higher initial margin to cover the larger potential price slippage (market impact cost) during the liquidation period.

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