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Collateral in the derivatives market serves to protect counterparties from losses, similar to how a secured loan works. For instance, when a person borrows money to buy a car, the car serves as collateral. If the borrower defaults, the lender claims the car to mitigate losses. In the derivatives market, assets are also pledged as collateral, safeguarding parties against trade value fluctuations. This is managed through variation margin, where changes in market value prompt the delivery of collateral. For example, in a ten-year interest rate swap, a $1 change in value results in $1 collateral being exchanged. New regulations mandate firms to post variation margin and some collateral before engaging in trades, enhancing overall economic safety.