Initial margin

The Jolly Contrarian’s Glossary The snippy guide to financial services lingo.™ →Go uptown Index — Click the ᐅ to expand: Glossary Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Also known, to ISDAphiles, as Independent Amount and to aggressive predictive text engines as “I’m”, this is the amount of collateral or margin a counterparty requires up front, notwithstanding any change in the mark-to-market value of the transaction.

Compare, by way of contrast, variation 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.

See also

• Margin call
• Independent Amount, the 1995 CSA and the CSA Anatomy generally
• EMIR, and in particular uncleared derivatives margin