Variation Margin
The daily cash transfer that settles mark-to-market gains and losses on open futures positions, paid to the clearinghouse and credited to winners.
Formula
Variation Margin = (Settlement Price − Prior Settlement) × Contract Multiplier × Contracts
Variation margin (VM) is the cash that actually moves each day to settle the profit and loss on open positions. After the exchange sets the daily settlement price, every account is marked to market: losers pay variation margin into the clearinghouse and winners receive it. This is distinct from initial margin, which is collateral posted up front and held against future risk — variation margin is the realized, day-by-day cash settlement of price changes.
Because VM is paid in cash and settled daily (and intraday during volatile sessions), futures positions never accumulate large uncollateralized exposure — the mechanism that lets a clearinghouse safely guarantee both sides. A trader whose losses exhaust available equity receives a margin call and must wire variation margin promptly, or the position is liquidated.
The practical takeaway: futures P&L is not "unrealized" the way a stock's is. Each session's loss leaves your account as cash and each gain arrives as cash, so you must hold liquidity beyond initial margin to fund adverse days even on a position you intend to keep.
Example
Long 1 ES from 5,400. The contract multiplier is $50. Settlement closes at 5,380 — a 20-point loss = 20 × $50 = $1,000 of variation margin debited from the account that evening. The next day it settles at 5,395 — a 15-point gain = 15 × $50 = $750 of variation margin credited. Each day's cash moves regardless of whether the position is closed.
Related Terms
Clearinghouse / Central Counterparty (CCP)
The entity that steps between buyer and seller in every cleared trade, becoming counterparty to both and guaranteeing performance so neither faces the other's default.
IntermediateDaily Settlement Price
The official closing price established by the exchange each session, used to calculate mark-to-market P&L and margin requirements.
IntermediateInitial Margin
The minimum deposit required to open one futures contract, set by the exchange clearing house (CME, CBOT, NYMEX).
BeginnerLeverage (Futures)
The ratio of a futures contract's full notional exposure to the margin posted, amplifying both gains and losses on the capital committed.
IntermediateMaintenance Margin
The minimum equity level a futures account must maintain; falling below triggers a margin call demanding top-up to initial margin.
BeginnerMargin Call
A broker demand to deposit more funds immediately because account equity has fallen below the required maintenance margin level.
BeginnerMark-to-Market
The daily revaluation of open futures positions to the settlement price, with gains and losses settled in cash each session.
Intermediate