How Does Variation Margin Settlement Affect a Trader’s Cash Balance Daily?
Variation margin settlement directly affects a trader's cash balance daily by either adding funds for profits or deducting funds for losses. If the position gained value during the day, the trader receives a credit of variation margin.
If the position lost value, the trader is debited the variation margin. This daily cash flow ensures that the account equity accurately reflects the current market value of the position.
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.
Positive Variation Margin
Transfer ⎊ This represents the daily or intra-day cash flow where the losing party in a derivative contract posts collateral to the winning party based on the change in the contract's mark-to-market value.
Variation Margin Settlement
Settlement ⎊ Variation margin settlement is the process of exchanging funds or collateral between counterparties to cover the change in the mark-to-market value of a derivatives position that occurred over a specific period, typically daily.
Daily Cash Flow
Projection ⎊ Daily cash flow within cryptocurrency, options, and derivatives contexts represents the net inflow and outflow of funds resulting from trading activities, collateral adjustments, and settlement processes on a given day.