To understand such a term as “variation margin”, it is necessary to decipher what margin is in the general sense. So, margin is a certain amount of money that is received by one side in the form of a guarantee of the fulfillment of the terms of the transaction by the second side. The basis of this concept is that if the party that paid the margin suddenly becomes insolvent and cannot fulfill its obligations, the party that has accepted the margin will be able to repay its open position using it. In other words, margin can be considered quite an important means of payment, with the help of which clearing companies will be able to manage high risks in the field of stock trading.
Variation margin is the daily profit or loss on the account of the trader's futures contract. In other words, this is a financial result in monetary terms based on the results of each trading session of the market.
In case of profit, the variation margin has a positive value, and if a trader incurs a loss, this indicator has a negative value and the amount received will be debited from the account based on the clearing results.
The main difference between futures and stock transactions is the timing of receipt of funds in the account. So, in futures transactions, money is debited or received every day, regardless of the actual sale, and for shares money will be credited to the account only at the time of its sale.
Let's try to figure out a specific example. The cost of one share of the enterprise is 200 rubles. and the trader buys it for the same 200 rubles. The share price increased to 220 rubles, but until the share is sold, no profit will be credited to the account.
Now another option for the operation with the same shares is futures operations, with the help of which we will see the calculation of margin itself. A trader purchased one futures on shares of the same enterprise at a time when their price on the securities market was 200 rubles. The cost of this futures will be 20,000 rubles. (each futures contract includes the value of 100 shares). In order to become the owner of one futures, the trader is required to make a guarantee in the amount of 12% of 20,000 rubles. or 2400 rub. Every day, the results of such a transaction are summed up. For example, at the end of the first day, the share price increased to 220 rubles, and accordingly, the futures price rises to 22,000 rubles. A positive difference of 2000 rubles. credited to the trading futures account, despite the fact that the position has not yet been closed and the futures have not been sold. Such a difference is the variation margin, and it is positive.
The calculation of the variation margin the next day is based on the futures price of 22,000 rubles. If the market that day closes at a share price of 21,300 rubles, then this will be a decrease of 700 rubles compared to the previous day, which should be debited from the futures account. Thus, the trader receives a negative variation margin.
As you can see from the above example, the main display of the result of transactions in futures trading is the variation margin, the definition of which itself reflects the positive moment when using it. This receipt of profit, regardless of the fact of the sale of futures, in contrast to securities transactions in the stock market.
However, there are also drawbacks to using this futures trading tool. This is the probability of constant debiting of the negative margin until the funds in the account of the trader are completely expired in case the stock price moves in a losing direction. Therefore, in order to keep the futures at home, the broker will need to deposit additional money into the account, otherwise this position may be forcibly closed, which will bring certain losses to the trader.
Such situations do not arise on the stock market of securities because when they are purchased, the full value of the block of shares is paid, and not a 12% guarantee, as in futures transactions.
Variation margin for various futures contracts is calculated on the basis of official algorithms given in the specifications of these futures. The specification is an exchange document containing the main parameters of the contract. It is there that the percentage of the value of the share package of guarantee collateral is also stipulated.