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What are the Margin Requirements for Futures?

For all transactions where the trade is settled at a later point in time, both the buyer and the seller run the risk of their counterparty not being able to fulfill their obligations in the future.

In a bilateral forward transaction between buyer and seller - without the exchange clearing house acting as the counterparty for either side - the buyer and seller will request collateral from each other to cover potential price fluctuations of the instruments traded. This collateral will be held until settlement.

Nowadays many OTC trades are cleared as exchange trades via central counterparties. In this context, Eurex Clearing offers many services via its EurexOTC Clear. More information can be found: here.

For exchange transactions, the clearing house (Eurex Clearing AG in the case of Eurex) will request *collateral from both counterparties. Eurex Clearing AG only actually requests collateral from its Clearing Members. But it nonetheless calculates margin requirements for all exchange participants

However, as exchange-traded futures and options can be traded on a daily basis, the collateral need only cover a short period of time and not the entire period until transaction settlement. In other words: The ability to close out positions easily provides buyers and sellers with the possibility of ridding themselves of their risks at any given time. This may not always be the case for forward transactions traded over the counter.

This is illustrated in the following graph:

Margin collateral reflecting the maximum expected fluctuations of the underlying is required for both options and futures. The required margin is called initial margin because it needs to be put up before (inital) entering into a position. The initial margin shall cover the potential losses in case of changed prices of traded derivatives. The margin amount is set daily by Eurex Clearing AG. It can also be re-determined on a short term basis during the day or due to upcoming events.

Eurex Clearing calculates the inital margin according to the Eurex Clearing Prisma methodology. The currently used risk based margining system will be replaced in a step wise approach starting end of 2012.
Eurex Clearing Prisma stands for "Portfolio Based Risk Management Methodology". With this methodology margin calls are not based on single products as within risk based margining but rather the risks and with the margin needs of a certain clearing member for certain product groups (so called liquidation groups) are assessed. The assumed time period for closing out of a clearing member’s liquidation group covers three to five days. Example: all equity products like equity options, single stock futures and equities are combined in one liquidation group and the margin requirements for this portfolio including potential price fluctuations will be calculated. The basis for the calculation is historical simulations with which the said portfolio is valued with various historical scenarios.

With the risk based margining method (RBM), Eurex Clearing sets a margin parameter for each product based on the underlying’s historical price fluctuations that is calculated for a price fluctuation of one day.

You can look up the latest margin rates here.

Please refer to the Eurex website for further information on Eurex Risk-Based Margining. A detailed description of Eurex Risk-Based Margining is provided in thenbsp;Risk-Based Margining brochure.

You can use the Eurex MarginCalculator at any time to calculate your current margin requirements for positions in futures and options.

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