How many forms are in Margin Hedging contained

Question

How many forms are in Margin Hedging contained?

Answer 1

Margin comes into two forms: the initial margin and the maintenance margin.

The initial margin is that amount which deposited at the initiation of the contract. The whole amount held as margin should stay above a prescribed maintenance margin. If this ever falls below its level then more money (or equal in bonds and stocks, etc.) should be deposited. The amount of margin which must be deposited depends on the exact contract. A dramatic market move could result in an unexpected large margin call which may be complicated to meet. To prevent such situation this is possible to margin hedge. It is, set up a portfolio so that a margin calls on one part of the portfolio are balanced with refunds from other parts. Generally over-the-counter contracts have no connected margin requirements and so won’t appear in the computation.