Variation Margin is an effective instrument of futures trading

To understand such a term as "variation margin" it is necessary to decipher what a margin is in the general sense. So, the margin is a certain amount of money, which is received by one party in the form of a guarantee of fulfillment of the terms of the transaction by the second party. The basis of this concept is that if suddenly the party that has paid the margin turns out to be insolvent and will not be able to fulfill its obligations, the party that accepted the margin will be able to repay its open position using it. In other words, the margin can be considered a sufficiently important means of payment, through which clearing companies will be able to manage high risks in the trading of shares.

Variational margin is the daily profit or loss on the account under the futures contract of the trader. In other words, this is the financial result in monetary terms based on the results of each trading session of the market.

In the case of profit, the variation margin has a positive value, and if the trader receives a loss, then this indicator has a negative value and the amount received will be written off from the account on the basis of clearing results.

The main difference between futures from operations with shares is the timing of receipt of funds to the account. So, in futures operations, money is written off or received every day, regardless of the actual sale, and for shares, money will be received to the account only when they are sold.

Let's try to understand 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 has increased to 220 rubles. But while the stock is not sold, the profit will not be received on the account.

Now another variant of the operation with the same shares is futures operations, with the help of which we will see the calculation of the margin itself. A trader purchased one futures for the shares of the same company at the 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 obliged to make a guarantee guarantee in the amount of 12% of 20,000 rubles. Or 2400 rubles. Each day sums up the results of such a deal. For example, at the end of the first day, the stock price increased to 220 rubles, respectively, and the cost of futures grows to 22,000 rubles. A positive difference of 2000 rubles. Is credited to the trader's futures account, despite the fact that the position is not yet closed and the futures itself is not sold. This difference is a variation margin, and a positive one.

Calculation of the variation margin for the next day is carried out based on the futures price of 22,000 rubles. In case the market closes this day at the price of shares at 21300 rubles, this will be a decrease in comparison with the previous day by 700 rubles, which are to be debited from the futures account. Thus, the trader receives a negative variation margin.

As we see from the above example, the main display of the result from transactions in futures trading is a variation margin, the definition of which itself reflects a positive moment when using it. This is the receipt of profits regardless of the fact of selling futures, in contrast to transactions with securities in the stock market.

However, there are also disadvantages in the application of this instrument of futures trading. This is the probability of permanent write-off of negative margins until the end of cash on the account of the trader in case of a stock price move to the losing side. Therefore, in order to keep the futures, 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.

In the stock market of securities, such situations do not arise because when buying them, the full value of the stake is paid, and not 12% of the collateral, as in futures transactions.

Variation margin for various futures contracts is calculated based on the official algorithms given in the specifications of these futures. The specification is an exchange document containing the main parameters of the contract. That is where the percentage of the share price of the guarantee package is stipulated.