Explain the Concept of "Marking-to-Market" for Futures Contracts ▴ Learn

Explain the Concept of “Marking-to-Market” for Futures Contracts.

Marking-to-market is the daily process of adjusting a futures trader's margin account to reflect the contract's current market value. At the end of each trading day, the contract's gains or losses are credited or debited to the trader's margin account.

This ensures that profits and losses are realized daily, not just at the contract's expiration. This mechanism is crucial for mitigating counterparty risk in the centralized clearing system.

Why Do Futures Exchanges Require Daily ‘Marking to Market’?

What Is the ‘Settlement Price’ and How Is It Determined by the Clearing House?

How Does the Concept of ‘Mark-to-Market’ Apply to Futures Contracts?

Explain the Difference between Initial Margin and Variation Margin