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What is a margin requirement in derivatives trading?

Curious about derivatives

What is a margin requirement in derivatives trading?

In derivatives trading, a margin requirement is the minimum amount of funds that a trader must deposit in their account to cover potential losses on their positions. It is a form of collateral that traders are required to provide to their broker or exchange to ensure that they can meet their financial obligations in case the market moves against them.

The margin requirement is typically calculated as a percentage of the total value of the position, and it varies depending on the asset being traded, the exchange or broker, and the trader's experience and risk appetite. Margin requirements are set by regulatory bodies to protect traders and the market from excessive risk and to ensure that all participants have sufficient funds to cover their losses.

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