Mark-to-market (MTM) is the daily settlement of profit and loss on a futures position. Every evening, the exchange compares your position against the day's settlement price and the difference is actually paid or received in cash. You don't wait until you exit the trade to realise gains or losses.
Why settle every day instead of at the end?
A futures contract can run for weeks. If losses piled up silently until expiry, a losing trader might owe a sum they could never pay, and the winner on the other side would be left stranded. Daily MTM keeps the tab short: each day's loss is collected that same day, so no one ever owes more than one day's move. It is the settlement system's way of never letting the bill grow overnight.
If futures themselves are new to you, read What is a futures contract? first.
How does MTM work day by day?
Let's trace Vikram's trade. He buys one lot of Kaveri Motors futures (250 shares per lot) at ₹800, a contract value of ₹2,00,000. He pays the initial margin upfront and holds the position for three days.
| Day | Settlement price | Calculation | MTM cash flow |
|---|---|---|---|
| Day 1 | ₹810 | (810 − 800) × 250 | +₹2,500 credited |
| Day 2 | ₹790 | (790 − 810) × 250 | −₹5,000 debited |
| Day 3 | exits at ₹795 | (795 − 790) × 250 | +₹1,250 credited |
Net result: ₹2,500 − ₹5,000 + ₹1,250 = −₹1,250, exactly the ₹5 fall from his entry price times 250 shares. MTM never changes what you make or lose. It changes when the money moves. Each evening the slate is wiped clean and the position is effectively re-priced at that day's settlement price.
Notice Day 2: the ₹5,000 debit comes out of Vikram's account that evening in real cash. If his balance can't absorb it, his margin cover drops, which is one of the classic ways a shortfall begins, as explained in What is a margin shortfall, and what is the penalty?
Which price is used for MTM?
The daily settlement price published by the exchange after the close, typically derived from prices in the last stretch of trading, not simply the final tick. This is also why the P&L you see during market hours can shift once the official settlement price lands; that behaviour is covered in Why does my P&L change after 3:30 pm?
Does MTM apply to anything besides futures?
Daily MTM cash settlement is a futures-segment feature (equity, index and commodity futures). Bought options don't have it. The premium you paid is your full outflow. Short option positions are managed through margins that move with the market instead. For shares held in Delivery, the value on your screen fluctuates daily, but no cash changes hands until you sell. Your holdings are marked to market for display, not settled to market.
Things to keep in mind
- MTM debits are real cash outflows every evening. Keep funds ready beyond the initial margin, especially in volatile weeks.
- A position can be profitable overall yet produce several loss days in between; each of those days needs cash.
- Repeated MTM losses shrink your margin cover quietly. Check your funds page daily while holding futures.
- MTM only changes the timing of your P&L, never its total.
Read next
What is peak margin? — Margin is not checked once a day — it is sampled at random through the session.