What Are the Initial Margin and Variation Margin, and How Do They Protect the Clearing House?
Initial margin is collateral collected from a member when a position is opened, acting as a performance bond or down payment. It is designed to cover potential future losses in the event of a default.
Variation margin, on the other hand, is settled daily and covers the day-to-day profits and losses on open positions. Together, these margins ensure that the clearing house has sufficient funds to close out a defaulting member's positions without incurring a loss.
