Explain the Concept of 'Marking-to-Market' in the Context of Futures Contracts ▴ Learn

Explain the Concept of ‘Marking-to-Market’ in the Context of Futures Contracts.

Marking-to-market (MTM) is the daily process of adjusting the margin account of a futures trader to reflect the contract's current market value. At the end of each trading day, any profits or losses are calculated based on the settlement price and immediately credited to or debited from the trader's margin account.

This ensures that all parties' accounts accurately reflect their current financial obligations. MTM minimizes counterparty risk by settling gains and losses daily, preventing large debts from accumulating.

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

What Is the Difference between Initial Margin and Maintenance Margin?

What Is the Difference between Initial Margin and Variation Margin for Futures?

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