Margin Call Sensitivity

Margin Call Sensitivity measures how quickly a borrower's position reaches a liquidation point based on changes in the value of their collateral. It is a critical metric for understanding the risk of a leveraged position.

A high sensitivity means that even a small decline in the collateral price will trigger a margin call or liquidation. Traders manage this sensitivity by maintaining a buffer of extra collateral, known as over-collateralization.

If the market is highly volatile, the sensitivity increases, requiring more careful monitoring and more frequent adjustments to the position. Understanding this sensitivity is vital for both individual traders and for protocols that must set safe collateralization ratios for all participants.