ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In derivatives markets, initial margin is one of two types of collateral required to protect a party to a contract in the event of default by the other counterparty. Variation margin – the other type of collateral – is paid daily from one side of the trade to the other, to reflect the current market value of the trade.

Detailed explanation-2: -A collateral amount is a form of loan against shares offered by a broker to their clients for trading in stock and shares. It is a form of an additional value-added service provided by a few brokers in India, and not all brokers offer this additional service due to the risk associated with it.

Detailed explanation-3: -Initial margin is the amount required by the exchange to initiate a futures position. While the exchange sets the margin amount, your broker may be required to collect additional funds for deposit. Maintenance margin is the minimum amount that must be maintained at any given time in your account.

Detailed explanation-4: -A margin call is the broker’s demand that an investor deposit additional money or securities so that the account is brought up to the minimum value, known as the maintenance margin. A margin call usually means that one or more of the securities held in the margin account has decreased in value below a certain point.