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Variation margin is designed to remove the mark-to-market exposure to your counterparty under a derivative transaction. On any day where any party is entitled to call for it (in this day and age, that’s usually any business day), that party can calculate the present market value, or replacement cost of the transaction, and require the counterparty to deliver eligible collateral equal to that value (subject to thresholds and minimum transfer amounts).

This has the effect of re-setting the total exposure to (more or less) nil, and means that you can, for a brief moment, relax, safe in the knowledge that your shirt is safe. But volatile markets can quickly move — a day is a long time when black swans are migrating — so you might want something to tide you over for expected movements between now and when you can next call for margin. For that, you need initial margin.

There is an argument that variation margin creates more problems than it solves. But more or less the entire might of the global regulatory apparatus is stacked against that view, so take it in the contrarian view in which it is offered.