25 June 2022 20:42

Variation margin on closed position

The variation margin is sometimes referred to as a maintenance margin. The variation margin is based on the intraday marked to market revaluation of a CFD position. For instance, if you have a long position and the price falls then you are required to pay a variation margin.

What does variation margin mean?

Variation Margin reflects the daily change in market value of the contracts, i.e. the daily gain or loss of a contract due to market movements.

How variation margin is calculated?

The difference between the initial margin and the maintenance margin, i.e., $1,000, is the variation margin. Thus, the variation margin is the amount of funds required to ensure the account reaches a minimum level to ensure future trades.

What can be used as variation margin?

The variation margin is a variable margin payment made by clearing members, such as a futures broker, to their respective clearing houses based on adverse price movements of the futures contracts these members hold.

What is variation margin in collateral?

In derivatives markets, variation margin is one of two types of collateral required to protect parties to a contract in the event of default by the other counterparty. It provides for changes in the market value of the trade or a portfolio of trades.

Can variation margin be negative?

In other words, for long futures, negative variation margin will be paid by the position holder, while he/ she receives the positive variation margin. In case of short futures, the holder pays the positive margin and receives the negative margin.

What is initial margin vs variation margin?

Initial Margin is the minimum balance you need to have in your account to open a position. Variation Margin is the unrealised profit (or loss) on open positions or transactions.

Does segregation apply to variation margin?

margin and variation margin, because the right to require segregation applies only to initial margin, and not to variation margin.

What is credit support annex for variation margin?

The 2016 Credit Support Annex for Variation Margin (VM) is an updated version of the 1995 ISDA Credit Support Annex (Title Transfer – English Law) that is limited to variation margin, and allows parties to establish variation margin arrangements that meet the requirements of new regulations on margin for uncleared

What is margin requirements RBI?

Margin requirement refers to the difference between the current value of the security offered for loan (called collateral) and the value of loan granted. It is a qualitative method of credit control adopted by the central bank in order to stabilize the economy from inflation or deflation.

Why does backwardation happen?

Backwardation can occur as a result of a higher demand for an asset currently than the contracts maturing in the future through the futures market. The primary cause of backwardation in the commodities’ futures market is a shortage of the commodity in the spot market.

Is backwardation bullish or bearish?

bullish

Backwardation is theoretically a bullish sign for oil, because it means traders no longer have an incentive to store oil and sell it at a later date. Instead, it’s best for them to sell oil now because prices could be lower in the future.

How do you profit from backwardation?

In order to profit from backwardation, traders would need to buy a futures contract on gold that trades below the expected spot price and make a profit as the futures price converges with the spot price over time.

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