What is Variation Margin associated with in trading?

Variation Margin is associated with adjustments in a trader's margin account due to market movements. This concept is crucial in the context of derivatives trading, where the value of contracts can fluctuate based on changes in market prices.

When the market moves against a trader's position, additional funds, known as variation margin, may be required to cover potential losses and maintain the required margin level. This mechanism ensures that the trader's account reflects current market conditions and mitigates the risk of default by requiring traders to promptly address losses or maintain the necessary collateral.

In essence, variation margin serves to protect both the trader and the clearinghouse, allowing continuous adjustment to account values as markets evolve. This dynamic is vital in maintaining the integrity of the trading process and preventing excessive risk from accumulating unchecked.