Margining
Margining is a financial practice used in trading to manage risk. It involves requiring traders to deposit a certain amount of money, known as a margin, to cover potential losses on their trades. This ensures that both parties in a transaction have enough funds to meet their obligations, reducing the risk of default.
In the context of derivatives and futures markets, margining helps maintain market stability. It allows exchanges to monitor the financial health of traders and adjust margin requirements based on market conditions. This process is crucial for protecting both traders and exchanges from significant financial losses.