Forums  > Basics  > Absurdly simple question on CDS initial margin requirements  
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Total Posts: 757
Joined: Jun 2004
Posted: 2018-10-18 12:17
Also surprisingly difficult to find via google....

If I want to sell $1MM protection on firm XYZ, 5-year CDS, what is the basis used to calculate my initial margin requirement? I know for example FINRA has minimum requirements, but what are they based on? If my initial margin requirement is 7% let’s say, do I post 70,000 at the initiation of the trade?

The confusing part for me is that as protection seller, my losses are capped at $1MM, assuming recovery rate of zero, but also at initiation this trade is, roughly, zero EV, right?

Could someone please walk me through the cash flows as it relates to initial margin for this trade. Assume for simplicity I have no other CDS positions.

Thank you

"These metaphors and similes aint similar to them, not at all." -Eminem
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