Margin securities

In connection with options transactions, the obligation for the writer of an option to deposit either the corresponding number of underlying assets or other collateral with his bank during the entire term. If the margin coverage proves to be insufficient due to market price changes, the bank may demand further collateral (margin call). – The level of margin coverage required for futures contracts has a direct impact on market liquidity. Indeed, low margin payments imply lower capital requirements needed to enter into and maintain a futures position. – In times of considerable volatility, there is a risk that investors will not be able to pay a correspondingly very high variation margin. They are – forced to abandon their futures positions, – supply in the market increases, and – prices may fall precipitously, which – can trigger a crash. – See initial margin, cash settlement, cash deposit, Brady commission, futures markets, leverage theory, margin, margin call, margin threshold, margin agreement.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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