A profitable hedge can still require cash before its final payoff arrives. Margin and collateral protect counterparties, but the trader must fund those transfers. This lesson calculates a futures margin call and a repo haircut, then distinguishes bilateral collateral from central clearing. The mechanisms support futures and short sales; they do not cap the position’s loss.
Learning objectives. By the end of this note you should be able to:
- calculate a futures margin call after daily settlement;
- calculate cash advanced under a repo haircut;
- explain variation and initial margin under a CSA or CCP;
- state what collateral reduces and what it cannot eliminate.
In this lesson
- Futures: initial, maintenance and variation margin
- Repo: the haircut protects the cash lender
- OTC derivatives: CSA or CCP
- A call restores the buffer after a loss
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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