A. Initial margin on equities, paid by purchasers and short sellers, generally functions as a security for a loan (typically given by a broker) and is similar to a down payment required for the purchase of a security.
B. Initial margin on derivatives refers to funds paid as a performance bond by both parties to the contract and is intended to guarantee that a party to a derivatives transaction will perform its obligation under the contract. Initial margin on derivatives is designed to cover future changes in the value of these instruments.
C. Maintenance margin refers to the value (i.e. net liquidating amount) which must be maintained in a margin account at all times after the initial margin requirement, if any, is satisfied.
D. Variation margin refers to funds that are required to be deposited in, or paid out of, a margin account which reflects changes in the value of the relevant instrument.
