How Does Collateralization (Margin) Work to Mitigate Counterparty Risk within a CCP Framework? ▴ Learn

How Does Collateralization (Margin) Work to Mitigate Counterparty Risk within a CCP Framework?

CCP members must post collateral, known as margin, to cover the potential cost of replacing a derivatives contract if they default. Initial margin is collected upfront based on potential future exposure.

Variation margin is collected daily to cover mark-to-market losses. This collateral acts as a financial buffer, ensuring the CCP has funds to manage a defaulting member's portfolio without incurring a loss.

Why Is the Variation Margin Process Not Typically Applied to Options Buyers?

Explain the Difference between Initial Margin and Variation Margin

What Is the Difference between ‘Initial Margin’ and ‘Variation Margin’?

How Does a Swap-Based ETF Typically Post Collateral to Mitigate Counterparty Risk?