How Does MTM Reduce Counterparty Risk?
Mark-to-Market (MTM) reduces counterparty risk by settling gains and losses daily. This daily settlement ensures that neither party to a futures contract accumulates a large, uncollateralized debt to the other.
By constantly adjusting the margin accounts to reflect current market value, the MTM process minimizes the potential loss in the event of a counterparty default.
Glossar
MTM
Valuation ⎊ Market-to-Market, or MTM, within cryptocurrency derivatives represents the continuous recalculation of the profit or loss on open positions based on real-time market prices, a practice critical for risk management and collateralization.
MTM Process
Calculation ⎊ This systematic procedure involves valuing all open derivative positions using the latest available market data, including spot prices and the prevailing implied volatility surface.