Mark-to-Market Margin (Detailed)
Mark-to-market (MTM) margin is the daily cash settlement process in Indian futures markets where the difference between a position's previous closing price and the current closing price is credited or debited to the trader's account every evening.
Unlike equity delivery trades where profit or loss is realised only on sale, futures contracts are marked to market daily. This means that every futures position — whether in Nifty index futures, Bank Nifty, or single-stock futures — is settled in cash at the end of each trading day based on the official daily settlement price published by the exchange. Gains are credited to the trader's account and losses are debited immediately, before the next trading session begins.
The daily settlement price for most NSE futures is calculated as the volume-weighted average price (VWAP) of trades in the last 30 minutes of the trading session. This methodology reduces the potential for price manipulation of the settlement level compared to using the last traded price, which could be influenced by a single large trade in the closing seconds.
The cash-flow implications of MTM are significant and underappreciated by newer F&O participants. A trader who is long Nifty futures at 22,000 and the index closes at 21,800 on day one must pay Rs 5,000 per lot (200 points × Rs 25 per point, the lot multiplier) to their broker by the next morning. This cash must come from available funds in the trading account. If the account lacks sufficient funds, the broker's risk management system may square off the position regardless of the trader's longer-term view.
This is fundamentally different from holding an equity position at a notional loss — no cash changes hands on unrealised equity losses until the shares are sold. Futures traders must therefore maintain a liquidity buffer beyond the initial margin to absorb adverse daily MTM flows, especially during volatile periods. In the March 2020 market crash, many retail futures traders were forced out of positions due to MTM calls even though the market partially recovered within weeks.
For options, MTM applies only to writers (sellers). Option buyers pay a premium upfront and their maximum loss is capped at that premium, so no additional MTM calls arise. Writers, however, face unlimited losses in theory (for naked calls) and are subject to daily MTM settlements on the premium value of their short positions. The interaction between the option premium MTM and SPAN margin requirements is a critical factor in managing an options writing book.