Define 'Variation Margin' and Its Relationship to 'Initial Margin' ▴ Learn

Define ‘Variation Margin’ and Its Relationship to ‘Initial Margin’.

Initial margin is the collateral posted upfront to cover potential future losses over a specific liquidation period. Variation margin (VM) is the daily or intraday transfer of funds between counterparties to cover losses or gains resulting from the daily marking-to-market of the position.

VM ensures the exposure never exceeds the initial margin, maintaining the collateral level to reflect the current market value of the contract.

What Is the Difference between Initial Margin and Variation Margin in a CCP?

Is Variation Margin Always Paid in Cash, or Can It Be Paid in Other Assets?

What Is “Pre-Funded Variation Margin” in the Context of Smart Derivatives?

How Does the Correlation between Assets Affect the Effectiveness of Cross-Margining?