Why Do Brokers Increase Margin Requirements during Periods of High Market Volatility?
Brokers increase margin requirements to protect themselves and the market from excessive losses. High volatility increases the probability of rapid price movements, which can lead to a trader's account equity falling below maintenance margin quickly.
By requiring more collateral, the broker creates a larger buffer against potential defaults.
Glossar
Market Circuit Breakers
Mechanism ⎊ Market circuit breakers are automated, pre-programmed mechanisms implemented by exchanges to temporarily halt or restrict trading activity when the price of a derivative or its underlying asset moves beyond a specified percentage threshold in a short period.
Margin Requirements
Definition ⎊ Margin requirements refer to the minimum amount of capital an investor must deposit and maintain with a broker or exchange to open and sustain a leveraged position in derivatives trading.
Brokers
Conduit ⎊ These entities serve as the essential interface, connecting sophisticated traders and quantitative analysts to the often-opaque liquidity venues for crypto options and derivatives.