How does daily mark-to-market work for futures?

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AcadiFi · Accepted Answer

Daily mark-to-market (MTM) means the clearing house revalues each open futures position at the day's official settlement price and settles the profit or loss in cash that same day through margin accounts.

Step by step:

1. At the close the exchange publishes a settlement price, typically a volume-weighted average of the final minutes.
2. Each open contract is compared to the prior settlement (or trade price if entered today).
3. The price change times contract size times the number of contracts equals that day's P&L.
4. Winners receive cash in their margin account; losers pay cash out.
5. The process repeats every trading day until position close or expiry.

Example: A trader named Yemisi Okafor sells 10 E-mini S&P contracts at 5,420. That evening the settlement prints 5,432. Her loss: (5,432 − 5,420) × $50 × 10 = $6,000 debited that night. Tomorrow's mark references 5,432, not her original entry.

MTM has two effects. First, credit risk collapses to a single day — counterparties never owe cumulatively unpaid P&L. Second, it creates path dependence: even if the price ends where it started, intermediate moves may have triggered margin calls.

This is a key distinction from forwards, which accumulate unrealized P&L until expiry and consequently carry larger counterparty exposure. Daily MTM is what allows clearing houses to manage risk with modest initial margin rather than full notional collateral.

How does daily mark-to-market work for futures?

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