What Is the Purpose of Daily Settlement in Futures?

The purpose of daily settlement is to manage and minimize credit risk, specifically counterparty risk, in the futures market. By settling profits and losses every day through the marking-to-market process, the clearinghouse ensures that traders cannot accumulate massive losses over time that they are unable to cover.

This daily cash flow exchange guarantees that the contract's financial obligations are met, making the market safer and more stable for all participants.