Margin and marking to market

Initial margin provides a buffer against potential exposure; variation margin responds to current value changes under the arrangement. Futures commonly settle gains and losses daily through marking to market. Margin is not simply the price paid to buy the underlying asset, and a hedge can create cash calls before the offsetting operating cash flow arrives. Contract size, price units, clearing rules and thresholds determine the amount. A profitable final hedge can therefore still create interim liquidity pressure. Requirements differ between instruments and between option buyers and writers.