Why Do Crypto Exchanges Prefer Automatic Liquidation over Margin Calls?
Crypto markets operate 24/7 with extreme volatility, making manual or delayed responses like traditional margin calls impractical. Automatic liquidation is a swift, automated risk management tool.
It ensures that positions are closed immediately upon breaching the maintenance margin, minimizing the chance of the account balance becoming negative and requiring the insurance fund.
Glossar
Risk Management
Exposure ⎊ Within cryptocurrency derivatives and options trading, exposure represents the aggregate risk arising from positions predicated on anticipated price movements.
Automatic Liquidation
Trigger ⎊ Automatic liquidation represents a pre-defined event within cryptocurrency derivatives markets, notably perpetual futures, initiating a forced closure of a trading position to mitigate accumulating losses and maintain exchange solvency.
Crypto Exchanges
Exchange ⎊ Crypto exchanges represent specialized platforms facilitating the trading of cryptocurrencies, derivatives, and related assets.
Traditional Margin Calls
Procedure ⎊ Traditional margin calls represent the process where a broker or central clearing counterparty notifies a client that their margin account equity has fallen below the required maintenance level, demanding an immediate deposit of additional funds or collateral.