Template:Types of margin

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.