Short answer

Mark to Market (MTM) in futures is a process of revaluing your open futures contracts at the end of each trading day to determine the profit or loss that has occurred due to changes in the price of the underlying asset. The exchange calculates the difference between your contract’s entry price and the contract’s current market price and settles the profit or loss in your account. This ensures you have enough margin in your account to cover potential losses from your open positions.

After trading hours, the exchange performs MTM calculations daily based on the day’s closing price. The exchange settles the profit and loss (P&L) to your trading account on the same day and will not reflect it in your positions on the following day.

How futures contract position values are calculated

You can calculate the change in the value of a futures contract as the difference between the futures contract price of the current day and the closing price of the prior day. You can calculate the P&L for the day by multiplying the price change in the futures contract value by the number of lots. You can obtain the total P&L by summing up all the daily P&L until you hold the futures contract position.

Example scenario

Buy price: ₹100

Sell price: ₹102

Lot size: 9500

Profit on the trade: ₹102 - ₹100 = ₹2

Total profit: 9500 × ₹2 = ₹19,000

While the above gives the overall P&L, the table below applies MTM for the same position. Assume the closing prices of SAIL for the 4 days are 101, 100, 101.5, and 102.3.

MTM on the fourth day is calculated as follows:

Total P&L: 14250 (Sum of the MTM of the first three days) + 4750 (P&L of the 4th day) = 19000

Two reference values are available: ₹101.5 as the previous day’s close (3rd day’s close), and ₹102 as the price at which you squared off the position. The sum of the daily MTM leads to the same P&L tally of ₹19,000 profit. From day 4 onwards, any changes in the contract price will not impact the P&L after you sell the contract at ₹102. The exchange will credit the profit of ₹4,750, adhering to the selling price of ₹102, to your trading account by the end of the day.

Things to keep in mind

MTM calculation applies only to futures contracts and not to options or equity stocks.

The exchange updates MTM on a live basis but reflects it in your funds statement only at the end of the day.

The MTM realised P&L for a closed position will not reflect in Arrow during the day, but will be updated in your Console funds statement at the end of the day. It will reflect on Arrow the next day.

If your position is in loss and you have insufficient balance in your account, your position may be squared off, and a margin penalty will be levied.

If the security is not traded on a particular day, the latest available closing price is considered for MTM.

MTM losses on your positions will show up as unrealised profit in Arrow until you square them off.

To learn more about MTM, visit Margin & M2M module on Arrow learning resources.