Variation margin calculation is the routine, usually daily, process of working out how much collateral must pass between two parties to reflect the change in market value of the positions between them. Each position is revalued at current prices, a step known as mark-to-market; the net value of the portfolio is compared with the collateral already held; and the difference is the amount to be called or returned as variation margin.
For bilateral derivatives the terms come from the credit support annex: any threshold below which no collateral is due, a minimum transfer amount, rounding, eligible assets and haircuts. Rules for uncleared derivatives now generally require daily calculation with no threshold. If a portfolio is worth 12 million to one party and it holds 10.5 million, it issues a margin call for 1.5 million. Clearing houses calculate it at least daily. Differences in valuation between parties lead to a collateral dispute.