Collateral provided by the buyer or the seller to guarantee the performance of a derivatives transaction. The margin consists of cash or pledged securities.
In Germany, the exchange clearinghouse requires that members provide margin for options and futures contracts. In the case of options, only the seller must provide margin, whereas both buyer and seller are obligated to meet margin requirements for futures transactions.
When a derivatives contract is concluded, the investors must provide initial margin of 2 to 7 percent of the contract volume. During the lifetime of the contract, adverse price developments may result in a margin call, in which the investor is required to put up additional margin immediately. Futures traders are affected by daily price movements in the market. If the price of the underlying instrument moves adversely, they must furnish additional margin (variation margin). If the price moves in their favor, their margin account will be credited accordingly.
