The mark-to-market process in futures trading means updating the value of your open positions every day based on the closing market price. If your trade is in profit, money is added to your account. If it’s in loss, money is deducted. This daily settlement continues until the trade is closed. It helps manage risk and ensures fairness between buyers and sellers.
How Does Mark-to-Market Work in Futures?
In futures trading, every day the exchange checks the current market price of your contract and compares it with your entry price. If the price moves in your favor, you get profit credited. If not, the loss is debited. This process happens daily until your position is closed or the contract expires. It helps keep accounts updated and fair for all traders.
Why is Mark-to-Market Important in Trading?
Mark-to-market is important because it keeps traders' accounts updated with real-time profits or losses. It reduces the risk of large unpaid losses building up over time. It also ensures the clearinghouse can collect daily margins and maintain stability in the market. Without this, traders could take huge risks without showing real-time impact on their accounts.
What is Daily Settlement in Mark-to-Market?
Daily settlement means the exchange settles your profits or losses at the end of each trading day. If your position earns a profit, the money is credited. If there's a loss, it’s deducted from your margin. This prevents large losses from building up and ensures only those with enough funds can hold their positions.
How Does Mark-to-Market Affect Margin in Futures?
Mark-to-market directly affects your margin. If your position loses money, the exchange deducts the loss from your margin balance. If your margin falls below the required level, you must add more funds to maintain the position. If you don’t, the broker may square off your position.
Is Mark-to-Market Applicable to All Futures Traders?
Yes, mark-to-market applies to all futures traders, whether retail or institutional. In India, NSE and BSE both use this system to keep the market transparent and secure. Every futures trader's position is marked to market daily, and gains or losses are settled at the end of the day.
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