Why Is MTM Less Common in Traditional Forward Contracts?
Traditional forward contracts are private, customized agreements between two parties. They are not traded on an exchange, and there is no central clearing house to manage risk.
The entire profit or loss is typically settled in a single payment on the contract's expiration date. Introducing daily MTM would require complex, ongoing coordination between the two private counterparties.
The lack of standardization makes MTM impractical for forwards.
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.
Daily MTM
Valuation ⎊ This process determines the current fair market value of open derivative positions at the close of each trading day.
Central Clearing House
Mitigation ⎊ Central clearing houses, within cryptocurrency derivatives and broader financial markets, function as intermediaries designed to reduce systemic risk by mutualizing credit exposures.