What is Mark-to-Market (MTM)? A Simple Guide
Mark-to-market (MTM) is the daily process of settling a derivative position's gains and losses against the closing price. Profits are credited and losses debited to your account each day. It keeps positions valued at the current market price and prevents losses from building up unseen.
Mark-to-market is how the exchange keeps derivative positions honest every single day. Instead of waiting for expiry, gains and losses are settled daily.
Understanding MTM helps you manage margin and avoid surprises. We will cover the idea, an example, and the practical takeaways. You can trade futures and options on Stockk.
Key Takeaways
- MTM settles gains and losses daily.
- Profits are credited, losses debited each day.
- It values positions at the current market price.
- It prevents losses from piling up unseen.
- A run of MTM losses can trigger a margin call.
How does mark-to-market work?
At the end of each trading day, the exchange values your open positions against the closing price. If you are in profit, the gain is credited to your account; if you are in loss, the amount is debited. The next day, the process repeats from the new price. This daily cycle keeps your account balance current.
Suppose you buy NIFTY futures and the index rises on day one. Your profit is credited that evening. If it falls on day two, that loss is debited. Each day settles independently against the closing price.
Why does MTM matter?
MTM ensures losses are recognised daily rather than accumulating quietly until expiry. This protects the market, but it means you must keep enough funds to cover daily debits. A string of MTM losses can reduce your margin below the required level, triggering a margin call for more funds.
MTM at a glance
| Day outcome | Effect on account |
|---|---|
| Position in profit | Amount credited |
| Position in loss | Amount debited |
| Repeated losses | Margin may fall short |
What traders should do
Because MTM debits happen daily, keep spare funds beyond the minimum margin so a few bad days do not force a margin call or a forced square-off. Monitoring your MTM through the day helps you react before losses become a problem.
Ready to put this into practice? Stockk lets you trade futures and options, with Indira Securities as your SEBI-registered broker. A demat account is free to open, and the Knowledge Center has more guides like this one.
Futures and Options are leveraged products and carry a high risk of loss that can be more than the money you put in. This article is only for learning and is not a recommendation to trade in derivatives.
Frequently Asked Questions
What does mark-to-market mean?
It is the daily settlement of a position's gains and losses against the closing price, crediting profits and debiting losses so the account stays current.
Why is MTM done daily?
It recognises losses as they happen rather than letting them build up, protecting the market and keeping positions valued at current prices.
Can MTM trigger a margin call?
Yes, repeated MTM losses can reduce your margin below the required level, prompting a call for more funds.
Does MTM apply to options too?
MTM primarily settles futures daily; option positions are marked for valuation, with settlement rules depending on the contract.
How should I prepare for MTM debits?
Keep spare funds beyond the minimum margin to absorb daily losses.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
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