Why Do Exchanges Use a Tiered Margin System?
Exchanges use tiered margin to manage the concentration of risk associated with large positions. Larger positions require a higher percentage of maintenance margin.
This discourages excessive leverage on very large trades, protecting both the exchange and the insurance fund from catastrophic, sudden liquidations that could destabilize the market.
Glossar
Tiered System
Structure ⎊ A tiered system, within cryptocurrency, options trading, and financial derivatives, denotes a hierarchical arrangement of access, pricing, or rewards predicated on predefined criteria, typically volume or value.
Tiered Margin
Structure ⎊ Tiered margin represents a risk management protocol employed within cryptocurrency derivatives exchanges, options trading platforms, and broader financial derivative markets, defining variable collateral requirements based on position size and prevailing market volatility.
Sudden Liquidations
Liquidation ⎊ Sudden liquidations within cryptocurrency derivatives, options trading, and broader financial derivatives represent a rapid and often involuntary closure of positions, typically triggered by margin calls exceeding available collateral.