Template:Variationmargindescription: Difference between revisions

[[Variation margin]] is designed to remove the [[mark-to-market]] exposure to your counterparty under a {{tag|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 {{csaprov|threshold}}s and {{csaprov|minimum transfer amount}}s).

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]].