Why Do Exchanges Reduce Maximum Leverage during High Volatility?
Exchanges reduce maximum leverage during periods of high market volatility to manage the increased risk of mass liquidations. High volatility means prices move rapidly, increasing the chance of a sudden, large loss that could deplete the exchange's insurance fund.
Lowering leverage increases the margin requirement, creating a larger buffer and reducing the strain on the risk engine.
Glossar
High Market Volatility
Metric ⎊ High market volatility is a quantitative metric representing the rapid and significant fluctuation of an asset's price over a specified period, typically measured by statistical dispersion methods like standard deviation or implied volatility from options pricing.
Maximum Leverage
Amplification ⎊ Maximum leverage, within cryptocurrency and derivatives markets, represents the utilization of borrowed capital to increase the potential return of an investment, fundamentally altering risk-exposure profiles.