Variation Margin
a.k.a. VM
The daily cash payments that move between parties to cover gains and losses on a derivatives position.
In plain English
The daily cash payments that move between parties to cover gains and losses on a derivatives position.
Variation margin is the daily settling-up on a leveraged contract. At the end of each day, open futures positions are marked to market. If yours lost value, you pay that loss in cash; if it gained, you receive the gain. The money moves every day, not just when you close.
This stops losses piling up unseen. If you cannot pay the variation margin, your position gets closed. It is separate from initial margin, the deposit you put up to open the trade.
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