Define ‘Initial Margin’ versus ‘Variation Margin’ in Derivatives Collateral.
Initial margin is the collateral required to be posted by a party before a trade is executed. It is designed to cover the potential future loss that could occur before the position can be liquidated.
Variation margin is the collateral that is exchanged daily to cover the actual change in the value of the derivative position (mark-to-market loss or gain). Initial margin covers potential future exposure; variation margin covers current exposure.
Glossar
Variation Margin
Collateral ⎊ Variation Margin represents a dynamic adjustment to posted collateral requirements in cryptocurrency derivatives markets, reflecting real-time mark-to-market losses on open positions.
Initial Margin
Collateral ⎊ Initial margin represents the equity a trader must deposit with a broker or exchange as a good faith commitment to cover potential losses arising from derivative positions, notably within cryptocurrency markets.