Final answer:
Interest is generally not paid on either initial margin or variation margin in futures trading. the initial margin serves as collateral and not a cost of trade, while the variation margin settles daily profits and losses with no interest being earned directly on these funds.
Step-by-step explanation:
When trading futures, you are required to deal with two types of margins: the initial margin and the variation margin. The initial margin is a deposit ensuring that you have enough capital to cover potential losses, and it's not meant to be a cost of the trade itself. For this reason, generally, interest is not paid on the initial margin in the context of futures trading. This margin is simply set aside as collateral.
The variation margin, however, represents the daily settlement of gains and losses based on the market movements of the futures contract. Variation margin involves actual cash flows in and out of the trader's margin account. Typically, there is no interest paid directly on this margin either. Instead, if additional funds are required to meet a margin call, these funds must come from the trader's other resources which might otherwise be earning interest. Meanwhile, if the account is in credit, the balance might earn interest depending on the broker's policies and the specific arrangements in place.