A 23.75% weekly range at 92.2% realised vol tests the leveraged-ETH margin
Should the exchange raise margin requirements for leveraged ETH clients after this rebound week, or keep them unchanged because the week closed up 11.65%?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 31 December 2018, ETH rose 11.65% from 137.81 to 153.86, with a 23.75% range between a low of 128.70 on Monday and a high of 159.26 on Saturday. Realised volatility was 92.2% annualised, the largest 1-hour move was 3.82%, and volume ran 1.9 times its prior 12-week average. The best day gained 9.28% and the worst lost 4.62%. The most recent prior week rose 6.77%, and ETH still sits 86.73% below its 52-week high. An illustrative exchange risk team sets margin for clients leveraged on this ETH market.
Judgment
Margin is set from how far and how fast price can move against a leveraged position, not from the week's positive direction. A 23.75% range, 92.2% realised vol and a 3.82% hour justify raising ETH requirements relative to BTC, sized from the observed range and the largest hour rather than the average week. Raise it for new and existing leveraged positions, accept the lower volume that follows, and leave unleveraged accounts untouched.
What would change it
If realised volatility and the weekly range fall for several consecutive weeks while liquidation shortfalls stay nil, the higher requirement can be scaled back. If ETH's weekly moves stay below its prior 12-week average, the ETH-relative-BTC gap can be narrowed.
What sets this case apart
Rising price is the case for easing margin here, yet the volatility and range, not the gain, set the requirement.