What Is Initial Margin and How Does It Protect the Clearing House?
Initial margin is a collateral deposit required from both the buyer and the seller of a derivatives contract when they open a position. It is calculated to cover the potential loss the clearing house might incur if the member defaults and the clearing house has to close out the position.
It is a performance bond that is held until the position is closed.
Glossar
Clearing House
Role ⎊ The Clearing House acts as a central counterparty (CCP) in traditional and centralized crypto derivatives markets, interposing itself between buyers and sellers to guarantee the performance of the contract.
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.
Performance Bond
Bond ⎊ A performance bond, within the context of cryptocurrency derivatives and options trading, represents a specialized financial instrument designed to mitigate counterparty risk associated with leveraged positions.
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.