Mark to Market (MTM) is the daily settlement mechanism used in futures markets to ensure that gains and losses are realised each day, preventing the accumulation of large unsettled obligations.
How MTM Works
At the end of each trading day, all open futures positions are revalued at the Daily Settlement Price (DSP) (usually the closing price). The difference between the previous day's settlement price and today's DSP is calculated:
- If positive (price moved in your favour): credited to your margin account
- If negative (price moved against you): debited from your margin account
If the margin account falls below the Maintenance Margin, a Margin Call is issued. The trader must replenish to the Initial Margin level, or the position is squared off by the broker.