Does MTM Eliminate the Need for an Initial Margin?
No, MTM does not eliminate the need for an initial margin. Initial margin is required as a buffer to cover the potential loss that could occur between the last MTM settlement and the next one, or before a margin call can be met and a position liquidated.
Without the initial margin, a sudden adverse price move could immediately push the account into a negative balance.
Glossar
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.
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.