What Is the Significance of the "Variation Margin" in Daily Collateral Management? ▴ Learn

What Is the Significance of the “Variation Margin” in Daily Collateral Management?

Variation Margin (VM) is the amount of collateral exchanged daily between counterparties to cover the change in the market value (Mark-to-Market or MtM) of a derivatives position. It ensures that the exposure is settled daily, preventing the build-up of large unrealized losses.

This daily settlement process significantly reduces the credit risk exposure over the life of the derivative.

What Are the Main Differences between Initial Margin and Variation Margin in Derivatives Trading?

What Is the Difference between a Margin Call and a Variation Margin Payment?

Why Do Futures Exchanges Require Daily ‘Marking to Market’?

What Is the Primary Purpose of Marking-to-Market in Futures?