Explain the Role of the Daily Mark-to-Market Process in Cash-Settled Futures.
Mark-to-market (MTM) is the daily process where the value of a futures contract is adjusted to its current market price. For cash-settled futures, this means daily profits and losses are credited to or debited from the trader's margin account.
This mechanism ensures that the exchange is protected from excessive counterparty credit risk by requiring immediate settlement of losses. It keeps the margin balance current and prevents the accumulation of large, unmanageable losses.
