The cash actually moved between accounts each day to reflect gains and losses on open futures positions.
initial-margin is collateral that sits there; variation margin is real money changing hands. After daily-settlement the clearing house debits every loser and credits every winner, so unrealised losses never accumulate unfunded.
For hedgers this creates a cash-flow problem the hedge itself does not have: the physical gain arrives when the goods are sold, but the futures loss must be funded tonight. Several famous blowups — Metallgesellschaft in 1993 — were funding failures, not price forecasts.
Example: short 20 corn contracts, corn rallies 12 cents. 12 cents x $50 per cent x 20 = $12,000 debited that evening, regardless of what your physical grain is worth on paper.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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