Initial And Variation Margin

This question practices a core market structure concept that comes up often in sales and trading interviews, especially for candidates who need to understand how cleared positions are funded and protected. It tests whether you can distinguish between collateral posted ahead of time to cover future credit risk and collateral exchanged over time to reflect daily changes in market value, as well as explain why margin exists in the first place. Interviewers ask this because margin mechanics are central to counterparty risk, clearing, and the practical cash flow impact of trading positions.