Why Is Variation Margin Often Required to Be Paid in Cash? ▴ Learn

Why Is Variation Margin Often Required to Be Paid in Cash?

Variation Margin (VM) is typically required in cash (or highly liquid, cash-equivalent stablecoins) because it represents the realized loss on a position that must be immediately settled to zero out the daily exposure. Cash is the most liquid and least volatile asset, ensuring the CCP or counterparty can immediately cover the loss without the risk or delay associated with liquidating a less liquid asset.

What Is the Difference between ‘Initial Margin’ and ‘Variation Margin’?

Define ‘Initial Margin’ versus ‘Variation Margin’ in Derivatives Collateral

Why Is Variation Margin Typically Settled in Cash, While Initial Margin Can Be Non-Cash Assets?

What Is the Difference between Initial Margin and Variation Margin for Futures?