Buyers and sellers must both put up minimum levels of collateral for each open contract that they hold. This is known as initial margin, and can be viewed as a good faith deposit. The specific level is calculated by the relevant exchange for that particular contract in conjunction with the clearing house. Most exchanges now use an algorithm known as SPAN (Standard Portfolio Analysis of Risk). This is currently in its fourth iteration and was developed by the Chicago Mercantile Exchange in 1988; it is made available under licence, and has become the market standard for portfolio risk assessment, used by over 50 exchanges worldwide and many other market professionals. It is in effect a ‘what if’ scenario model and marks portfolios ...

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