Why Is the Mark Price Often Used as the Basis for Calculating Initial Margin?
The Mark Price is used because it represents a more stable and less manipulated reference value than the Last Traded Price. Basing initial margin on the Mark Price ensures that the required collateral is calculated against the most reliable estimate of the position's true market value, thereby protecting the exchange and the clearing house.
Glossar
Calculating Initial Margin
Collateralization ⎊ Calculating initial margin represents a preemptive capital requirement established by exchanges or clearinghouses to cover potential losses arising from derivative positions, particularly within cryptocurrency and options markets.
Mark Price
Valuation ⎊ The Mark Price within cryptocurrency derivatives represents a fair value estimation, calculated to mitigate price manipulation and ensure orderly market functioning, particularly during periods of low liquidity or volatility.
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.