MTM in Futures: Meaning of Mark-to-Market Daily Settlement
Mark-to-market, commonly called MTM, is the process through which profit or loss on a futures position is calculated and settled after every trading day.
Instead of waiting until the trader closes the position or the contract expires, the clearing system transfers each day’s loss from the losing side to the profitable side. The remaining open position is then reset to that day’s settlement price.
For example, if you buy one Nifty futures contract and its settlement price rises by 100 points, the day’s profit is calculated on the full lot quantity. If the settlement price falls by 100 points, the same calculation produces an MTM loss.
This chapter explains how MTM works, which prices are used, how daily profit or loss is calculated and why an account can face a funds shortfall even when the futures position remains open.
Key Takeaways
- MTM in futures settles daily profit or loss using the contract’s daily settlement price and the position’s total quantity.
- Daily MTM for a long position is positive when the reference futures price rises; the result reverses for a short position.
- The daily settlement price is generally the contract’s last-30-minute volume-weighted average; a theoretical price may apply when required trading is absent.
- After MTM settlement, an open futures position resets to that day’s settlement price, which becomes the next day’s calculation base.
- An MTM loss is an actual settlement obligation, not a fee; insufficient eligible funds can create a margin shortfall.
What Is MTM in Futures?
MTM in futures is the daily settlement of gains and losses arising from changes in a futures contract’s price.
Every futures contract has two sides:
- A long position benefits when the futures price rises.
- A short position benefits when the futures price falls.
At the end of each trading day, open futures positions are valued using the contract’s official daily settlement price. The resulting profit or loss is settled through the clearing framework.
The basic economic flow is:
- A trader enters a futures position.
- The futures price changes during the trading day.
- The exchange determines the daily settlement price.
- MTM profit or loss is calculated for the position.
- The losing side pays, and the profitable side receives the corresponding amount.
- The open position resets to the daily settlement price for the next trading day.
This daily reset is a defining part of how futures contracts work.
MTM Is Not Calculated on the Margin Amount
Suppose one futures contract provides ₹16 lakh of market exposure while the broker blocks ₹2 lakh as margin.
Your MTM is calculated using the futures price movement and the contract quantity, not the ₹2 lakh blocked as margin.
A 100-point movement in a 65-unit contract produces:
MTM = 100 x 65 = ₹6,500
The calculation remains ₹6,500 whether the blocked margin is ₹1.8 lakh, ₹2 lakh or ₹2.2 lakh.
This is why understanding the difference between the full contract value and SPAN and exposure margin is essential.
Why Is MTM Settled Daily?
Daily MTM prevents losses from remaining unpaid until the position is closed or the contract expires.
Without daily settlement, a trader could accumulate a large loss over several weeks. If that trader later failed to pay, the default could affect the counterparty, broker and clearing system.
Daily MTM reduces this risk by regularly collecting losses that have already occurred.
However, daily settlement does not eliminate all risk. A large overnight gap or rapid intraday move can create a loss larger than the available account balance.
How Is the Daily Settlement Price Determined?
The daily settlement price is the official price used to value futures positions at the end of the trading day.
For equity-index and individual-stock futures, the daily settlement price is generally based on the volume-weighted average price of that futures contract during the final 30 minutes of trading across exchanges, or another price prescribed by the relevant authority.
Daily Settlement Price Is Not Necessarily the LTP
The last traded price, or LTP, is simply the price of the most recent transaction. The daily settlement price is calculated using the exchange-prescribed methodology.
Suppose a Nifty future shows:
LTP at market close: 25,214
Daily settlement price: 25,208
The day’s official MTM is calculated using 25,208, not automatically using the final displayed LTP of 25,214.
This means the MTM amount in the final ledger can differ slightly from the profit or loss visible on the position screen immediately before the market closes.
What Happens If the Contract Is Illiquid?
An unexpired futures contract may have no qualifying trades during the final 30 minutes.
In such cases, the exchange can determine a theoretical daily settlement price using the prescribed methodology instead of treating the last available trade as the settlement price.
A simplified theoretical relationship is:
Futures price = Spot price adjusted for financing cost and time to expiry
The practical implication is important: an open futures position can receive an MTM debit or credit even when the particular contract did not trade near the market close.
Futures Price, Not Spot Price, Determines Daily MTM
Suppose Nifty spot rises by 80 points, but the Nifty futures contract rises by only 55 points because its basis changes.
Your MTM follows the 55-point movement in the futures contract, not the 80-point movement in the spot index.
The spot price may influence the futures price, but it is not directly substituted into the daily MTM calculation for an unexpired liquid futures contract.
How Is MTM Calculated in Futures?
The MTM formula depends on whether the position is long or short and whether it was opened today or carried forward from the previous trading day.
MTM Formula for a Long Futures Position
A long position gains when the futures price rises.
Long MTM = (Current reference price - Previous reference price) x Lot size x Number of lots
MTM Formula for a Short Futures Position
A short position gains when the futures price falls.
Short MTM = (Previous reference price - Current reference price) x Lot size x Number of lots
The long and short position determines the sign of the result.
Which Reference Prices Are Used?
| Position status | Previous reference | Current reference |
|---|---|---|
| Opened today and held overnight | Trade price | Current daily settlement price |
| Carried forward and still open | Previous daily settlement price | Current daily settlement price |
| Carried forward and closed today | Previous daily settlement price | Exit price |
| Opened and closed on the same day | Entry price | Exit price |
When several trades are executed, the applicable quantity and weighted prices must also be considered.
MTM Example for a Long Nifty Futures Position
Assume:
Nifty futures purchase price: 25,200
Daily settlement price: 25,270
Lot size: 65 units
Number of lots: 1
The futures price has risen by:
25,270 - 25,200 = 70 points
The day’s MTM profit is:
70 x 65 = ₹4,550
The long trader receives an MTM credit of ₹4,550 through the applicable settlement process.
After settlement, 25,270 becomes the reference price for calculating the next day’s MTM.
If the Futures Price Falls Instead
Assume the daily settlement price is 25,130.
Price movement:
25,130 - 25,200 = -70 points
MTM result:
-70 x 65 = -₹4,550
The long position incurs an MTM loss of ₹4,550.
MTM Example for a Short Futures Position
Assume a trader sells one Nifty future at 25,200 and the daily settlement price falls to 25,120.
Price movement favourable to the short position:
25,200 - 25,120 = 80 points
MTM profit:
80 x 65 = ₹5,200
If the settlement price had risen to 25,280, the short position would have incurred an MTM loss of ₹5,200.
| Settlement price movement | Long position | Short position |
|---|---|---|
| Futures price rises by 80 points | +₹5,200 | -₹5,200 |
| Futures price falls by 80 points | -₹5,200 | +₹5,200 |
Before using these calculations, confirm the applicable lot size and other F&O contract terms.
Complete Three-Day MTM Example
Assume Priya buys one Nifty future at 25,200 and holds it for three trading days. The lot size is 65 units.
| Day | Calculation reference | Closing or exit price | Price change | Daily MTM |
|---|---|---|---|---|
| Day 1 | Entry at 25,200 | Settlement at 25,260 | +60 | +₹3,900 |
| Day 2 | Previous settlement at 25,260 | Settlement at 25,140 | -120 | -₹7,800 |
| Day 3 | Previous settlement at 25,140 | Exit at 25,310 | +170 | +₹11,050 |
| Total | Entry at 25,200 | Exit at 25,310 | +110 | +₹7,150 |
Total MTM:
₹3,900 - ₹7,800 + ₹11,050 = ₹7,150
Direct trade calculation:
(25,310 - 25,200) x 65 = ₹7,150
Both approaches produce the same gross result.
Daily MTM changes when the profit or loss is settled, but it does not change the total economic P&L between the original entry and final exit.
What Does the Daily MTM Reset Mean?
After Day 1, Priya’s position is reset from the original entry price of 25,200 to the daily settlement price of 25,260 for the next MTM calculation.
This does not mean that Priya manually closed and reopened the position. It means the settlement system has already accounted for the first 60-point gain.
Therefore, Day 2 measures only the movement from 25,260 to 25,140:
Day 2 MTM = (25,140 - 25,260) x 65 = -₹7,800
Calculating Day 2 from the original entry price would count the Day 1 profit again and produce an incorrect daily obligation.
The Reset Does Not Erase Your Original Entry Price
A broker may continue displaying the original average entry price to help you understand the overall trade result.
The settlement system, however, uses the previous day’s settlement price as the reference for the next day’s MTM.
Both displays can be correct because they answer different questions:
- Original entry price helps calculate the total trade result.
- Previous settlement price helps calculate the current day’s settlement obligation.
Can a Profitable Futures Position Have an MTM Loss?
Yes. A position can remain profitable from its original entry while producing a loss for the current trading day.
Suppose you buy a Nifty future at 25,000.
Day 1 settlement price: 25,300
Day 2 settlement price: 25,200
Day 1 MTM profit:
(25,300 - 25,000) x 65 = ₹19,500
Day 2 MTM loss:
(25,200 - 25,300) x 65 = -₹6,500
Overall profit from the original entry:
(25,200 - 25,000) x 65 = ₹13,000
The trade is still profitable overall, but Day 2 creates an MTM debit because the futures price declined from the previous settlement price.
How MTM Works for Multiple Lots
Assume you buy three Nifty futures lots at 25,100 and the daily settlement price is 25,180.
Price movement:
25,180 - 25,100 = 80 points
Total quantity:
65 x 3 = 195 units
MTM profit:
80 x 195 = ₹15,600
A common mistake is multiplying the movement only by the lot size and forgetting the number of lots.
The complete calculation must include:
- Futures price change
- Lot size
- Number of lots
- Long or short direction
How Partial Exits Affect MTM
Assume you hold two Nifty futures lots from a previous daily settlement price of 25,100.
During the next session:
You sell one lot at 25,180.
You keep the second lot open.
The daily settlement price is 25,150.
For the lot that was closed:
(25,180 - 25,100) x 65 = ₹5,200
For the lot that remains open:
(25,150 - 25,100) x 65 = ₹3,250
Total result for the day:
₹5,200 + ₹3,250 = ₹8,450
Only the remaining open lot is reset to 25,150 for the next trading day.
Always confirm the final net quantity. Placing an exit order does not close a position unless the required quantity actually executes.
MTM for Intraday and Overnight Futures Positions
MTM applies economically to both intraday and carried-forward futures positions, but the calculation references differ.
Position Opened and Closed on the Same Day
If you buy one Nifty future at 25,100 and sell it at 25,160:
Gross P&L = (25,160 - 25,100) x 65 = ₹3,900
The position is already closed, so no open quantity remains to be reset to the daily settlement price.
Position Opened and Held Overnight
If you buy at 25,100 and the daily settlement price is 25,160:
Day 1 MTM = (25,160 - 25,100) x 65 = ₹3,900
The open position is then reset to 25,160.
Carried-Forward Position Closed During the Day
If the previous daily settlement price was 25,160 and you sell the long position at 25,220:
Exit-day result = (25,220 - 25,160) x 65 = ₹3,900
The original entry price is not reused for the exit-day settlement because earlier daily movements have already been settled.
MTM Profit and Loss Settlement
NSE Clearing calculates daily MTM obligations for clearing members. The losing side’s clearing account is debited, and the corresponding amount is passed to the profitable side.
For equity derivatives, daily MTM pay-in and pay-out generally occur on a T+1 basis at the clearing-member level, where T is the trading day.
However, the timing visible in a retail client’s trading account can differ because the broker may:
- Reflect live losses in available funds during the session
- Block additional funds before formal settlement
- Update the ledger after end-of-day processing
- Show provisional and settled P&L in different fields
- Apply its own risk-management cut-offs
Do not assume that an MTM loss can be funded only after the final ledger entry appears. A broker can restrict orders or reduce available margin as soon as its risk system recognises the loss.
MTM Is Different From Futures Margin
MTM and futures margin serve different purposes.
| Item | Futures margin | MTM settlement |
|---|---|---|
| Purpose | Provides collateral against potential losses | Settles profit or loss that has already occurred |
| Nature | Blocked account resource | Actual debit or credit |
| Calculation | Based on SPAN, ELM and other applicable requirements | Based on futures price movement and quantity |
| After position closes | Block is generally released after applicable adjustments | Settled gain or loss remains in the account |
| Maximum loss | Does not define maximum loss | Represents only the measured settlement-period result |
MTM is not a brokerage charge, tax or penalty. It is the profit or loss arising from the futures price movement.
Brokerage, taxes, exchange charges, the bid-ask spread and slippage can make the final net result lower than the gross MTM calculation.
How MTM Loss Affects Available Margin
A futures account can face pressure from two directions:
An MTM loss reduces eligible account resources.
The futures position continues to require margin while it remains open.
Assume:
Eligible account resources: ₹2,30,000
Futures margin requirement: ₹2,00,000
Free margin before loss: ₹30,000
MTM loss: ₹22,000
Resources after recognising the loss:
₹2,30,000 - ₹22,000 = ₹2,08,000
Remaining free margin:
₹2,08,000 - ₹2,00,000 = ₹8,000
The contract remains open, but the funding cushion has fallen from ₹30,000 to ₹8,000.
If the MTM loss had been ₹35,000, eligible resources would fall to ₹1,95,000, creating a ₹5,000 margin shortfall.
What Happens If You Cannot Pay an MTM Loss?
If eligible account resources fall below the required amount, the broker may:
- Restrict new positions
- Reject additional orders
- Cancel pending orders
- Ask the trader to add funds
- Close part or all of the open position
- Recover any remaining debit balance
A broker alert should not be treated as a guaranteed grace period. During a fast market, the broker may reduce positions before the trader can transfer funds.
Closing the position also does not erase the MTM loss already incurred. Any negative balance remaining after the square-off must still be settled.
How Overnight Gaps Affect MTM
MTM exposure continues while the futures position remains open, including when the market is closed.
Suppose you hold one long Nifty future and the contract opens 400 points lower the next morning.
Approximate loss:
400 x 65 = ₹26,000
A stop-loss order may execute only after the market opens. If the opening price is below the stop level, the actual execution can be worse than the intended exit price.
Because leverage in F&O trading applies the full contract movement to a smaller blocked amount, an overnight price gap can consume the available funds quickly.
What Happens to MTM at Futures Expiry?
On the expiry day, an open futures position is marked to the applicable final settlement price rather than an ordinary daily settlement price.
For a position carried into expiry:
Final settlement P&L = (Final settlement price - Previous daily settlement price) x Quantity
The direction is reversed for a short position.
After final settlement, the expired futures contract ceases to exist. Index futures are settled in cash, while stock futures can create physical settlement obligations.
The complete process is covered separately under futures expiry and rollover.
Broker Screen Fields That Traders Often Confuse
| Screen field | What it usually indicates |
|---|---|
| LTP | Price of the latest futures trade |
| Day P&L | Change in the position’s value during the current session under the broker’s display method |
| Overall P&L | Result measured from the broker’s average or original position reference |
| Daily settlement price | Official end-of-day price used for MTM settlement |
| Realised P&L | Result on quantity that has been closed |
| Unrealised P&L | Indicative result on quantity that remains open |
| Available margin | Eligible capacity remaining after blocks, losses and risk adjustments |
| Ledger balance | Posted account debits and credits after broker processing |
These labels are not perfectly standardised across brokers. Check the broker’s field definitions before reconciling the position screen with the ledger.
Common MTM Mistakes to Avoid
Using the spot-price movement: Futures MTM is based on the relevant futures prices, not directly on the underlying spot movement.
Using LTP as the final settlement price: LTP can differ from the official daily settlement price.
Reusing the original entry every day: After daily settlement, the previous settlement price becomes the next calculation base.
Treating MTM as a separate fee: MTM is the futures profit or loss itself, not an additional trading charge.
Ignoring the number of lots: Price movement must be multiplied by the lot size and total lots.
Confusing daily and overall P&L: A profitable overall position can still create an MTM loss for a particular day.
Assuming margin covers the loss: Margin is collateral and does not cap the amount a futures position can lose.
Waiting for the ledger update: Brokers may recognise live losses and act before formal settlement entries appear.
Ignoring partial execution: An incompletely filled exit order leaves part of the position exposed to further MTM changes.
MTM Calculation Checklist
Before calculating or reconciling futures MTM, verify:
- The exact futures contract and expiry
- Whether the position is long or short
- The applicable lot size
- The number of open lots
- The trade price or previous daily settlement price
- The current daily settlement price or executed exit price
- Whether any quantity was partly closed
- Whether the displayed result includes charges
- Whether the amount is live, provisional or settled
- Whether sufficient eligible funds remain after an MTM debit