Why Are Margin Requirements Higher for Volatile Assets?
Margin requirements are higher for volatile assets like cryptocurrency to ensure that the collateral is sufficient to cover potential large, rapid losses. Higher volatility increases the risk of a sudden, significant price move that could wipe out a trader's margin deposit.
The increased margin acts as a buffer, protecting the exchange or broker from absorbing losses if a trader defaults.
Glossar
Volatile Assets
Exposure ⎊ Volatile assets, within cryptocurrency, options, and derivatives, represent instruments susceptible to rapid and substantial price fluctuations, demanding sophisticated risk quantification.
Margin Requirements
Collateral ⎊ Margin requirements represent the equity a trader must deposit with a broker or exchange as a good faith measure, securing potential losses arising from leveraged positions within cryptocurrency, options, and derivative markets.