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Futures and Options
Mark to Market Mechanism
Learning Outcome
5
Apply MTM calculations using examples.
4
Evaluate the role of risk management.
3
Understand margins and margin calls.
2
Explain the daily MTM settlement process.
1
Understand the Mark to Market (MTM) mechanism.
Mark to Market Mechanism
Mark to Market (MTM) is the process of revaluing an open futures position at the end of each trading day using the official settlement price, and immediately transferring the resulting gain or loss in cash between the buyer and seller through the clearinghouse.
Example: You buy 1 lot of Nifty 50 futures at ₹18,200 (lot size = 50). Next day, the settlement price is ₹18,500. Your MTM gain = (18,500 − 18,200) × 50 = ₹15,000 credited to your margin account. If it had fallen to ₹17,900, you'd have ₹15,000 debited.
Daily settlement Process
1. Exchange Sets Settlement Price
At the end of each trading day, the exchange declares the closing settlement price for futures contracts.
Eg: Nifty Futures closes at ₹18,500 today.
2. Compare with Previous Day
This settlement price is compared with yesterday’s price to find the daily change.
Eg: Yesterday ₹18,200 → Today ₹18,500 → Change = +₹300. a
3. Calculate Daily Gain/Loss (MTM P&L)
The difference is multiplied by the lot size to get the profit or loss.
Eg: ₹300 × 50 lot = ₹15,000 gain if you were long.
4. Cash Settlement (Credit/Debit)
Profits are credited to the trader’s margin account, losses are debited immediately.
Eg: ₹15,000 credited today; if price falls tomorrow, losses are deducted.
5. Margin Call if Balance Falls
If losses reduce your margin below the required level, the broker asks you to add funds.
Eg: If margin drops below maintenance, you must top up or risk position closure.
6. Reset for Next Day
Today’s settlement price becomes the new reference for tomorrow’s MTM calculation.
Eg: Tomorrow’s calculation starts fresh from ₹18,500
Significance of Risk Management
Core Concepts (Slide 6)
Core Concepts (Slide 7)
Core Concepts (.....Slide N-3)
Summary
5
Build strong branding
4
Use different marketing channels
3
Target the right audience
2
Create and communicate value
1
Understand customer needs
Choose cool, soft colors instead of vibrant colors
Max 5 Points for Summary & Min 2
Quiz
Which platform is mainly used for professional networking and B2B marketing ?
A. Facebook
B. Instagram
C. LinkedIn
D. Snapchat
Quiz-Answer
Which platform is mainly used for professional networking and B2B marketing ?
A. Facebook
B. Instagram
C. LinkedIn
D. Snapchat
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