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Why Does an Exchange Require a Higher Margin for a Larger Position?

An exchange requires a higher margin for a larger position due to the increased systemic risk. A large position has a greater market impact upon liquidation, increasing the probability of significant slippage and a negative balance.

By requiring a higher initial and maintenance margin percentage, the exchange creates a larger financial buffer to absorb potential losses, protecting its insurance fund and the overall market stability.

What Is ‘Negative Slippage’ and How Does It Differ from ‘Positive Slippage’?
Why Is the Maintenance Margin Typically Lower than the Initial Margin?
Distinguish between ‘Positive Slippage’ and ‘Negative Slippage’
Could a CBDC Be Used to Enforce Negative Interest Rates?