Tax Facts

7591 / What is a variations margin?

A variations margin is a daily cash flow system under which each owner of a “futures contract” (including a regulated futures contract) declining in value during a trading day must provide additional cash margin (i.e., cash payment to the owner’s margin account) equal to the decline in value. An owner of a contract which gained in value during the day is permitted to withdraw margin money from the account equal to the owner’s “profit” for that day. Profit or loss (i.e., an increase or decline in value) for any trading day is measured by comparing the closing price of the “futures contract” on that day with the closing price on the previous day.

In other words, in a variations margin system each “futures contract” or regulated futures contract is “marked to the market” at the end of each trading day (see Q 7592).

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