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Collateral in the derivatives market is similar to how a secured loan works. In this scenario, when a person takes out a loan to purchase a car, the car serves as collateral. If the borrower cannot repay, the lender repossesses the car to recover losses. In the derivatives market, collateral protects counterparties from losses, as assets are pledged against trades. Due to fluctuations in market value, variation margin is necessary; if the value of a trade changes, collateral is adjusted accordingly. For example, in a ten-year interest rate swap, if the value changes by $1, $1 in collateral is delivered. New regulations mandate that firms post variation margins and, often, additional collateral before trading to enhance safety in the economy.