A margin is an amount of cash that is paid to or received from a
stock exchange clearing house in connection with futures
trading. This can be one of the following: - Initial margin This
is the ante or deposit that is required in order to trade a
futures contract. Initial margin is the way in which the
exchange protects itself against bad debts relating to the
futures contract, usually defaulting on variation margin
payments (see below). Initial margins are calculated based on
the current selling price and the market risk. The initial
margin is refunded at the time the futures contract expires. -
Variation Margin A futures contract can be to buy x or to sell x
at some future date. Let us say, you have undertaken to buy x -
i.e. you are betting that the price of x will rise. If the price
moves in your favour, you receive a variation margin payment
from the exchange. If the price falls, you are expected to pay a
variation margin to the exchange, and to settle in 24 hours (T+1
settlement). This is called a margi