Why Is the Initial Margin Set Higher than the Maintenance Margin?
The initial margin is set higher to create a necessary buffer. This buffer is the distance between the opening price and the liquidation price.
It allows the market to move against the trader without immediately triggering a liquidation. This space is crucial for the exchange's risk management, giving time for potential price recovery or for the liquidation engine to act.
Glossar
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.
Initial Margin Set Higher
Margin ⎊ Initial margin refers to the minimum amount of capital a trader must deposit to open a new leveraged position in cryptocurrency, options, or other financial derivatives.
Initial and Maintenance Margin
Definition ⎊ Initial margin represents the minimum amount of collateral required to open a new leveraged position in a derivatives contract.
Liquidation Engine
Mechanism ⎊ A Liquidation Engine within cryptocurrency derivatives functions as an automated process triggered by margin calls, designed to mitigate counterparty risk for exchanges and lenders.