1. What Is Variation Margin?

Variation Margin represents the daily settlement amount in futures trading, calculated as the difference between the current value and previous value of a position. It ensures that margin accounts are properly funded to cover potential losses.

2. How Does The Calculator Work?

The calculator uses the Variation Margin formula:

Where:

• \( Current Value \) — Current market value of the position
• \( Previous Value \) — Previous day's market value of the position

Explanation: A positive result indicates a gain that is credited to the account, while a negative result indicates a loss that must be covered by additional margin.

3. Importance Of Variation Margin Calculation

Details: Accurate variation margin calculation is crucial for risk management in derivatives trading, ensuring sufficient collateral is maintained and preventing counterparty default in volatile markets.

4. Using The Calculator

Tips: Enter current value and previous value in currency units. Both values must be non-negative numbers representing the market values on respective days.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between initial margin and variation margin?
A: Initial margin is deposited when opening a position, while variation margin represents daily settlements based on price movements.

Q2: When is variation margin typically calculated?
A: Variation margin is calculated daily at the end of each trading day as part of the mark-to-market process.

Q3: What happens if variation margin is not paid?
A: Failure to pay required variation margin may result in position liquidation or additional penalties as per exchange rules.

Q4: Can variation margin be negative?
A: Yes, negative variation margin indicates a loss that requires additional funds to be deposited into the margin account.

Q5: How does variation margin affect trading strategies?
A: Variation margin requirements impact cash flow management and may influence position sizing and risk tolerance in volatile markets.