6. What is Mark-to-Market (MTM) in Futures Trading?
Mark-to-Market (MTM) is a daily settlement process in futures trading where the value of your open positions is adjusted to reflect the day’s closing market price.
This means profits and losses are realized daily, not just at expiry.
Why Is MTM Important?
Proactively manages risk by adjusting trader accounts daily
Ensures financial discipline and avoids surprises at contract expiry
Helps exchanges/brokers monitor exposure and margin health
Maintains transparency and market stability
How MTM Works – Step by Step
Suppose:
You buy 1 lot Nifty Futures @ ₹22,000
Lot Size = 50
Contract Value = ₹11,00,000
Margin Paid = ₹1,10,000 (10% assumed)
Daily MTM tracking:
Day
Futures Price
MTM Gain/Loss
Cumulative Position
Day 1
₹22,000 (entry)
₹0
₹0
Day 2
₹22,200
(22,200 - 22,000) × 50 = ₹10,000
₹10,000 credited
Day 3
₹21,900
(21,900 - 22,200) × 50 = -₹15,000
₹15,000 debited → ⚠️ Margin Call possible
Day 4
₹22,000
(22,000 - 21,900) × 50 = ₹5,000
₹5,000 credited
If MTM Falls Below Margin Requirement…
If losses reduce your margin below maintenance level → Broker issues margin call
If funds not topped up → Broker can auto-square off your position
Protects the system from defaults
Daily MTM Ledger – What Brokers Show You
At day’s end, broker updates:
MTM Gain/Loss
Available Margin
Margin Shortfall (if any)
New Margin Requirement
Real-Life Analogy
MTM is like paying your credit card bill daily instead of monthly.
This avoids one big shock later by handling risk daily.
MTM Applies to Both Buyer & Seller
Trader Type
Impact of Price Rise
Impact of Price Fall
Buyer (Long)
Profit
Loss
Seller (Short)
Loss
Profit
The system is zero-sum → Buyer’s gain = Seller’s loss.