Why Is the Initial Margin Always Higher than the Maintenance Margin?
The initial margin is set higher than the maintenance margin to provide a safety cushion for the clearing house and the broker. This buffer is designed to absorb losses that occur during a trading day before the maintenance margin level is breached and a margin call is issued.
This gap allows the broker time to monitor the account and for the trader to deposit additional funds, preventing immediate liquidation and providing a first line of defense against market volatility.
Glossar
Maintenance Margin Level
Collateral ⎊ The maintenance margin level, within cryptocurrency derivatives and options trading, represents the minimum equity a trader must maintain in their account relative to their margin requirements.
Preventing Immediate Liquidation
Liquidation ⎊ Preventing immediate liquidation, within cryptocurrency derivatives and options trading, represents a suite of strategies and mechanisms designed to forestall forced asset sales triggered by margin calls or adverse market movements.
First Line of Defense
Mitigation ⎊ The First Line of Defense in cryptocurrency, options trading, and financial derivatives represents proactive capital allocation strategies designed to curtail potential losses before significant market movements occur.
Initial Margin
Collateral ⎊ Initial margin represents the equity a trader must deposit with a broker or exchange as a good faith commitment to cover potential losses arising from derivative positions, notably within cryptocurrency markets.