Can Two Private Parties Agree to MTM Terms in a Forward Contract?
Yes, two private parties can agree to include MTM terms in their forward contract. This is typically done through a Credit Support Annex (CSA) within a master agreement.
The CSA specifies the collateral to be posted and the frequency of collateral calls, effectively mimicking the MTM process of a futures contract. This is a common practice among large financial institutions to manage credit risk.
Glossar
MTM Process
Calculation ⎊ This systematic procedure involves valuing all open derivative positions using the latest available market data, including spot prices and the prevailing implied volatility surface.
MTM
Valuation ⎊ Market-to-Market, or MTM, within cryptocurrency derivatives represents the continuous recalculation of the profit or loss on open positions based on real-time market prices, a practice critical for risk management and collateralization.
Credit Support Annex
Documentation ⎊ This legal supplement, typically attached to an ISDA Master Agreement, specifies the terms under which collateral is exchanged between counterparties to mitigate credit exposure in derivative transactions.
Master Agreement
Framework ⎊ A Master Agreement, within cryptocurrency, options trading, and financial derivatives, establishes a standardized set of terms governing future transactions between parties, reducing negotiation costs and legal risks associated with each individual trade.
Private Parties
Counterparty ⎊ Private Parties, within cryptocurrency derivatives and financial markets, represent entities engaging in contractual agreements ⎊ often over-the-counter (OTC) ⎊ where bespoke terms necessitate direct negotiation and risk assessment beyond standardized exchange protocols.