Valuation Buffer

A Valuation Buffer is the margin of safety built into the pricing of collateral to account for potential inaccuracies or rapid changes in price. The margin engine uses this buffer to ensure that even if the market price is slightly off or moves quickly, the account remains protected.

It is often implemented as a percentage gap between the market price and the price used for liquidation calculations. This buffer acts as a cushion, providing time for the engine to react before a position becomes truly insolvent.

It is a standard practice in financial engineering to handle the inherent uncertainty of asset valuation. The size of the buffer is typically calibrated based on the volatility and liquidity of the asset.