• Business
  • Crypto
  • Investing
  • Lifestyle
  • Money
  • Glossary
    • A
    • B
    • C
    • D
    • E
Search
Sign in
Welcome! Log into your account
Forgot your password? Get help
Password recovery
Recover your password
A password will be e-mailed to you.
Finance Reference
Quotes by TradingView
  • Business
    • The Impact of Artificial Intelligence on Social Media Marketing
      What Is The Importance Of Web Design For Your Business?
      3 Factors That Make Your Company Vulnerable to Financial Fraud
      Ways Businesses Can Survive Tough Economic Times
      Product Labeling and Packaging Tips for Businesses
  • Crypto
    • Crypto Market Indexes: Your Ticket to Making Money Through Crypto
      10 Benefits Of Using Crypto Debit Cards
      Everything You Need to Know About Metamask
      Anti-Money Laundering Best Practices for Crypto Firms
      You Should Invest in Bitcoin and Here’s Why
  • Investing
    • Comparing Stock Market Performance vs. Real Estate Investments Through History
      How to Fast Track a Retirement Plan in Your Middle-Age
      How Much of Your IRA Should Be in Precious Metals
      What To Know Prior to Investing in Gold and Silver
      How to Invest in Real Estate: 4 Ways to Help You Get Started
  • Lifestyle
    • How to Choose an Affordable Health Care Plan
      Interesting Facts about Bet9ja
      The Pros and Cons of Anti-Obesity Medication for Weight Loss
      Is It Worth Extending Your Car Warranty? 12/14
      List Of All Vegetables That Dogs Can Eat
  • Money
    • Efficient Funding Opportunities for New and Old Social Businesses
      10 of the Best Funding Sources For Medical Offices In 2023
      Invoice-to-Pay: Automate Your Invoice Payment Cycle
      How To Take Care Of Home Budget During The Winter?
      8 Ways to Improve Your Personal Finances
  • Glossary
    • Overhead Ratio
      What Is an Overhead Ratio?
      Non-Executive Director
      Non-Executive Director: Roles and Responsibilities
      Mothballing
      What is Mothballing & When Should You Do It?
      Night Depository
      What is a Night Depository?
      Pooled Funds
      Exploring the Benefits and Risks of Pooled Funds: A Comprehensive Guide
      AllABCDE
  • Glossary
  • V

Variation Margin

By
rjonesx
-
Variation Margin

How to Calculate Variation and Maintenance Margin

In futures trading, you must provide variation margin to your broker if you want to continue trading. If you fail to provide variation margin, your broker will forcefully close your position and you will lose money. The maintenance margin required for each market and asset is different. The variation margin amount is the cash required to bring your account back up to its original margin level. This amount must be provided in a timely manner to avoid losing your entire account. Here are some helpful tips to calculate variation margin.

Maintenance margin is a factor in calculating variation margin

Using a varying margin to make a trade requires a certain amount of liquid funds. This amount is known as the variation margin. Essentially, the variation margin serves as collateral for losses on the trades. Depending on the type of trade, it may be lower or higher than the initial margin. The maintenance margin must be at least $1,000. In a nutshell, it is the minimum amount that a trader needs to place a trade.

When determining how much variation margin to use in a trade, it is important to understand what a maintenance or initial margin is and how it relates to the calculation. In short, maintenance margin is the minimum amount an investor must maintain in a margin account when making trades. It is usually less than the amount required at the time of initial margin, but it is an important factor in determining the overall amount of margin a trader has available for trades. In order to avoid trading below maintenance margin, traders should set up their account balance with at least 25% of the total market value.

Option value is not included in the calculation of variation margin

The SPAN sign convention is the opposite of US sign convention. This is consistent with the operation of SPAN across the globe. The calculation of the variation margin for options is based on the option value as of the latest close of business on the prompt date. The total variation margin for a naked long call option is equal to the option value at its latest close of business. Generally, the SPAN sign convention is used for calculating option variation margin.

The variation margin is the amount of money required by a clearing member to maintain a given level of the margin in a margin account. It is the amount of money required by a clearing member when their funds fall below the maintenance margin. It is also known as a margin call. The clearing member pays the variation margin to the clearinghouse in response to the change in price of the futures contracts that are held by the member.

Initial margin is a factor in calculating variation margin

Initial margin is a key factor in calculating variation and maintenance levels. Variation margin, on the other hand, is used to bring the capital in an account up to a certain level. In order to maintain the margin level, liquid funds must be available. These liquid funds serve as collateral in case of a loss. Therefore, initial margin and maintenance margin work together to create an overall market value. In case of a dispute, both Covered Entities should take necessary measures to resolve the matter.

To calculate variation margin, the initial margin of an investor must be matched with the maintenance of the equity account. The maintenance margin is usually less than the initial margin required to trade stocks. It allows the investor to borrow from the brokerage and functions as collateral for the borrowed amount. The minimum maintenance margin for stocks is 25%, while other brokerages may set a higher level. A broker can use the initial margin as a guideline when calculating variation margin.

Working with a clearinghouse

A clearing member pays a clearinghouse variation margin to reduce the amount of exposure to high-risk positions. The goal of this process is to make the process of orderly payment of funds easy for all members. Clearing members also pay a minimum amount of variation margin to the clearinghouse each day. This payment ensures that the clearinghouse maintains a certain level of risk exposure and can manage the money more efficiently.

This contract strategy is elegant but precarious. Nondefaulting members risk having their variation margin gains cut or their contracts torn up. This uncertainty can be costly for members who don’t rely on the clearinghouse’s services. Without a clear understanding of the clearinghouse’s financial stability and reliability, they may decide to exit. However, this is rarely recommended. Clearinghouses must maintain their financial soundness to remain in business.

Previous articleFakeout
Next articleVenture Capital Trust (VCT)
rjonesx

RELATED ARTICLESMORE FROM AUTHOR

Overhead Ratio

What Is an Overhead Ratio?

Non-Executive Director

Non-Executive Director: Roles and Responsibilities

Mothballing

What is Mothballing & When Should You Do It?

EDITOR PICKS

Per Stirpes vs Per Capita

Earnings Before Tax (EBT Formula)

Obsolete Inventory

Should I invest in additional life coverage?

SPX vs SPY: Which is Better for Trading Options on the S&P 500?

Quarter (Q1, Q2, Q3, Q4)

Latest

Comparing Stock Market Performance vs. Real Estate Investments Through History

How to Choose an Affordable Health Care Plan

How to Fast Track a Retirement Plan in Your Middle-Age

Efficient Funding Opportunities for New and Old Social Businesses

Interesting Facts about Bet9ja

The Impact of Artificial Intelligence on Social Media Marketing

  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • J
  • K
  • L
  • M
  • N
  • O
  • P
  • Q
  • R
  • S
  • T
  • U
  • V
  • W
  • X
  • Y
  • Z
  • About
  • Accessibility
  • Privacy
  • Sitemap