Collateral Pledge Agreement For Initial Margin (im)
Description
How to fill out Agreement Pledge Of Stock And Collateral For Loan?
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FAQ
Initial margin is held to cover the losses that could arise in the period between the defaulter's last variation margin payment and the point at which the surviving party is able to hedge or replace the trade.
For example, if a crude oil futures contract is quoted at $100,000, a futures account holder can enter a long position by posting only $5,000 initial margin, or 5% of the contract value. In other words, this initial margin requirement would give the account holder a 20x leverage factor.
Overview of Margin Requirements In general, under Federal Reserve Board Regulation T (Reg T), brokers can lend a customer up to 50 percent of the total purchase price of a margin equity security for new purchases.
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.
Initial margin (IM) is collateral collected and/or posted to reduce future exposure to a given counterparty as a result of non-cleared derivative activity. Whilst there is a recognised process within exchange traded and cleared derivatives, this is largely a new process for non-centrally cleared OTC derivatives.