Competence Trainer

Simulation Package: Risk capital – Pledging cash collateral (information)

Short description

Analyse the pledging of cash collateral to manage counterparty (credit) risk; deposit initial margin & variation margin.

Analyse the pledging of cash collateral to manage counterparty (credit) risk; depositing initial margin and variation margin.

Capacity:

You act in the role of a market participant.

Task:

Your task is to analyse the margin deposits, both initial margin and variation margin.

Objective:

The aim of this simulation is to:

Analyse the margin requirement(s) of an open position.

Therefore, open a position (long or short), initially of one unit only. Now, watch the initial margin being deposited instantly, being taken from your working capital and transferred digitally in an automated manner. Then, watch the market price to develop and see what this does to your variation margin requirement.

Analyse the margin requirement(s) of a closed position.

Therefore, close the position that was initially opened. Upon closing the position, your margin requirements are zero (and, therefore, your margin deposits should now be zero), both initial margin and variation margin.

Now start all over again, but this time you take a position of more than one unit (for instance four units). Again, analyse your margin requirements/deposits (or capital allocation); the variation margin (if required) will change dynamically, on the basis of market dynamics.
At a certain point, close your position and watch your margin requirements/deposits turn zero.

Situation:

Only one product is shown; hence; only one product can be transacted.
Position limit (per product): 5 units (contracts; either long or short).
The IT settings are such that one click will lead to aggress a volume of one (contract).
When submitting an order (ticket): It concerns an immediate-or-cancel order. If your price is off-market your order cannot be executed; hence; it cannot be submitted.
Initial margin = 25.00 (per contract).
Variation margin = Unrealised loss (per position).
At the end of the simulation, any position left open still requires a margin deposit; for sure initial margin, and, in case of an unrealised loss, also variation margin.

Note:

Feel free to pause the simulation when it is running. This allows you to temporarily stop the dynamics, which allows you to analyse while the market is frozen.

Study advice:

Follow these online courses (see: guide) at ENTRIMA, to apply this knowledge in this simulation:

Clearing
Margining