Collateral posted at the start of a trade to cover potential losses between the last margin payment and close-out. It is held in addition to variation margin.
Where you will meet it
Initial margin comes up in 27 learning outcome notes across the FRM syllabus.
A few of them:
Introduction to Derivatives FRM Part I · Financial markets and products
“The clearing house controls credit risk with initial margin and daily marking to market, so losers pay variation margin each day.”
Derivatives FRM Part II · Credit risk measurement and management
“Initial margin is posted when the position opens.”
Exchanges and OTC Markets FRM Part I · Financial markets and products
“The CCP controls its own risk by admitting only well-capitalised clearing members, collecting initial margin, settling gains and losses daily through variation margin, setting position limits, and holding a default fund contributed by members.”
Exchanges and OTC Markets FRM Part I · Financial markets and products
“Non-cleared trades face mandatory exchange of variation margin and, for large dealers, initial margin, plus higher capital charges.”
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