Definition
Mark to Market (MTM)
Mark to market is the daily revaluation of open positions at current prices, with gains credited and losses debited from your account each day.
In derivatives and leveraged positions, your account is marked to market at the day's settlement price. If a futures position moves against you, the loss is debited that very day (and credited to the winning side), so paper losses become real cash flows daily.
MTM ensures no large unrealised loss accumulates unchecked, protecting the clearing corporation. If MTM losses erode your margin, you get a margin call. It is why traders must keep buffer funds, an adverse move can trigger same-day debits even before you exit.
Related terms
- Clearing CorporationA clearing corporation is the entity that clears and settles trades on an exchange, becoming the buyer to every seller and the seller to every buyer through novation, and guaranteeing settlement.
- Margin (Trading)Margin is the collateral a trader must deposit to cover potential losses on a position, comprising components such as SPAN, exposure and mark-to-market margin in the Indian derivatives market.
- Open Interest (OI)Open interest is the total number of outstanding (not yet settled) derivative contracts in a futures or options market.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.