Variation Margin Explained

Summary

Variation margin is the cash paid or received as futures positions are marked to market. It reflects realised day-to-day gains or losses rather than a loan balance.

Definition

Variation margin is the flow of cash into or out of a futures margin account as the contract is marked to market. The article’s futures example shows this clearly: when a £100,000 notional position falls 3%, the £3,000 loss is debited in cash, reducing the account balance immediately. If that pushes the balance below maintenance margin, the trader must restore funds according to the broker’s rules, commonly back to the initial margin level. This matters because the pressure appears as a cash settlement obligation rather than as interest on borrowed money, and because a trader can face a funding need even though the futures position has not yet been closed.

Sources

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