Many expect the extreme increases in margin calls for listed derivatives in particular to cause further...

Many expect the extreme increases in margin calls for listed derivatives in particular to cause further defaults among smaller clearing firms. Why are “margin calls” increasing currently?

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Expert Solution

Margin calls are increasing currently because there is a very high volatility which is present in the current market and that is reflective of a situation where there is a high degree of uncertainty in the external environment due to which there are fierce movements both on the upside and the downside and hence stop losses of various investors are getting triggered and they are continuously making losses due to increase in the volatility due to which the maintenance margin of their account is triggered and hence they are paying up with Margin calls .

Derivatives markets are full of large number of speculators who are reflecting the market sentiments, and at the times when there is a very high volatility and uncertainty in the market, the markets are showing extreme movements on the upside as well as on the downside and hence, it would be leading to triggering of the stock losses on the frequent basis and increase in the margin calls also, so maintenance margin are getting breached and margin calls are getting triggered again and again.

jeff jeffy answered 1 year ago

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