Template:Types of margin: Difference between revisions
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Amwelladmin (talk | contribs) (Created page with "===Initial margin and variation margin=== Margin comes in two forms. *Variation margin, or VM, is collateral against the present mark-to-market value of t...") |
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===[[Initial margin]] and [[variation margin]]=== | ===[[Initial margin]] and [[variation margin]]=== | ||
Margin comes in two forms. | [[Margin]] comes in two forms. | ||
*[[Variation margin]], or [[VM]], is collateral against the present [[mark-to-market]] value of the transaction exposure. | *[[Variation margin]], or [[VM]], is collateral against the present [[mark-to-market]] value of the transaction exposure. | ||
**If you don’t have this and the counterparty goes bust, you’re whistling. | **If you don’t have this and the counterparty goes bust, you’re whistling. | ||
Latest revision as of 12:50, 22 June 2018
Initial margin and variation margin
Margin comes in two forms.
- Variation margin, or VM, is collateral against the present mark-to-market value of the transaction exposure.
- If you don’t have this and the counterparty goes bust, you’re whistling.
- In many kinds of margin loan, VM will take the form of the asset in question itself.
- Initial margin, or IM, is additional collateral in excess of the present mark-to-market value of the transaction exposure.
- This guards against sudden adverse movements in the value of the collateral or the exposure between margin calls.
- IM is calculated by reference to the expected maximum loss in value of the transaction (and the existing margin) over the margin period.