What Is ‘Implied Volatility’ and How Does It Relate to Futures Margin?

Implied volatility (IV) is the market's forecast of a likely movement in a security's price, derived from the price of options contracts. While IV is primarily an options concept, it is used by futures exchanges as a forward-looking indicator of risk.

If IV is high, it suggests the market expects larger price swings, prompting the exchange to increase the required margin to better prepare for the increased potential for liquidation deficits.