The mark-to-market process begins with Nutourne Co having to deposit an amount (the initial margin) in a margin account with the futures exchange when it takes out the futures. The margin account will remain open as long as the futures are open. The profit or loss on the futures is calculated daily and the margin account is adjusted for the profit or loss.
The maintenance margin is the minimum balance which has to be maintained on the margin account.
If the losses on the futures are so large that the balance on the margin account is less than the maintenance margin, then the futures exchange will make a demand (a margin call) for an extra payment (the variation margin) to increase the balance on the account back to the maintenance margin.
In the example, initial margin = $1,450 x 98 = $142,100
Maintenance margin = $1,360 x 98 = $133,280
Loss in ticks = 0·0011/0·0001= 11
Total loss = 11 ticks x $12·50 x 98 = $13,475
Balance on margin account = $142,100 - $13,475 = $128,625
This is less than the maintenance margin, so Nutourne Co would have to deposit an extra ($133,280 - $128,625) = $4,655 (the variation margin) to bring the balance on the margin account up to the maintenance margin.
Alternative solution
In some exchanges, a variation margin may be required to increase the balance on the account back to its initial margin level. Therefore, in this case, the variation margin amount would be $13,475 (i.e. $142,100 - $128,625).
