A Daily Margin Call represents a demand from a broker or clearing house for an account holder to deposit additional funds or collateral. This action is triggered when the value of a leveraged position declines, causing the account equity to fall below a predefined maintenance margin level. Its purpose is to ensure sufficient collateral coverage for open positions.
Mechanism
The operational mechanism involves automated systems continuously monitoring the market value of collateral and outstanding leveraged positions. When a specified margin threshold is breached, the system automatically generates a notification to the account holder, requesting an immediate deposit of additional assets. In crypto, these processes are often executed via smart contracts or centralized exchange infrastructure, requiring rapid response times to prevent forced liquidation.
Methodology
The strategic approach behind daily margin calls centers on mitigating counterparty credit risk and maintaining market stability. These calls prevent cascading defaults by ensuring that all participants maintain adequate capital to cover potential losses. For institutional crypto options trading and RFQ crypto, effective liquidity management and the implementation of robust collateral management systems are critical to meeting margin requirements and avoiding involuntary position closures during periods of market volatility.
A CSA threshold dictates the amount of uncollateralized exposure tolerated before a margin call is triggered, balancing credit risk and operational cost.
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