easy · FRM Part 1 Financial Markets and Products
What is the difference between 'variation margin' and 'initial margin' regarding their role in credit risk?
- Variation margin is only used by hedgers, while initial margin is only used by speculators.
- Initial margin prevents losses from occurring, while variation margin covers them after they happen.
- There is no difference; both terms are used interchangeably for the cash in a margin account.
- Variation margin settles already incurred losses daily, while initial margin covers potential future losses during a default close-out.
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