What Is MTM in Trading? Mark to Market Explained With F&O Examples

What Is MTM (Mark to Market) in Trading?

MTM, or mark-to-market, is the process by which the exchange revalues your open futures and options positions at the end of every trading day and settles the day's notional profit or loss into your trading account. If Nifty futures move against you today, that loss is debited from your account today, even though you haven't sold anything.

This exists because futures and options are leveraged contracts. You've only put up a fraction of the contract's value as margin, so the exchange needs a way to make sure your account can absorb losses as they happen, not just when you eventually close the trade. Equity delivery trades, buying shares outright, don't work this way. MTM is specific to derivatives and leveraged positions.

Key takeaway: MTM is a daily cash settlement against your open F&O positions, calculated using the exchange's official closing price. It isn't a final profit or loss until you actually close the position.

How MTM Works

Every trading day, NSE computes a Daily Settlement Price (DSP) for each futures contract, essentially its official closing value. Your open position is then "marked" against that price, and the difference from the previous day's settlement price is credited or debited to your account before the next trading session opens.

Here's what that looks like for a trader holding one lot of Nifty futures (lot size 65, as of the January 2026 revision):

1. 1

   Trader buys 1 lot of Nifty futures at 24,500. Contract value: 24,500 × 65 = ₹15,92,500, against which margin (a fraction of this) is blocked.

2. 2

   At day's close, Nifty settles at 24,350, down 150 points from the entry price.

3. 3

   MTM loss for the day = 150 × 65 = ₹9,750. This amount is debited from the trader's account before markets reopen.

4. 4

   Next day, Nifty recovers and settles at 24,600, up 250 points from the previous settlement price of 24,350.

5. 5

   MTM profit for the day = 250 × 65 = ₹16,250. This is credited to the trader's account.

6. 6

   Net position across both days: up 100 points from the original entry (24,600 − 24,500), matching the ₹6,500 net MTM credit (₹16,250 − ₹9,750).

Notice that each day's MTM is calculated against the previous day's settlement price, not the original entry price. Your entry price only matters for the very first day; after that, MTM is always a day-over-day comparison.

MTM Loss in Futures and Options

MTM loss isn't about whether you're "right" on the trade overall. It's about which direction the price moved relative to your position, that specific day. A position can be MTM-negative for days and still turn profitable at expiry, or the reverse.

Options work slightly differently depending on which side you're on. If you've sold (written) options, your position carries margin and gets MTM'd daily just like futures. If you've only bought options, there's no MTM settlement in the futures sense. Your loss is simply the drop in the option's market value, capped at the premium you paid, with no additional cash call beyond that.

MTM Margin vs Initial Margin

These two terms get mixed up constantly, and the confusion is understandable. Both involve money getting blocked or debited against your F&O position. But they serve different purposes.

Aspect	Initial Margin	MTM Margin
When it's charged	Upfront, before the position is opened	Daily, for as long as the position stays open
Purpose	Collateral against potential future price moves (worst-case buffer)	Settles the actual price move that already happened that day
How it's calculated	Based on SPAN + exposure margin rules, roughly a percentage of contract value	Points moved × lot size, against the previous settlement price
Can it go up or down?	Recalculated periodically as volatility changes, but not tied to daily price moves	Moves every single day the market is open, in either direction
Example (Nifty futures, 1 lot)	Roughly ₹1.75–1.8 lakh blocked to open the position, about 11% of contract value (varies with volatility)	₹9,750 debited on a day the market moves 150 points against you

If your MTM losses keep eating into your margin balance, your broker will ask you to add funds. This is a margin call. Ignore it, and the broker can square off your position without further notice.

Daily MTM Settlement

Daily MTM settlement is the mechanical process behind everything above. It's the actual cycle of when and how the debit or credit happens. NSE computes the Daily Settlement Price shortly after the market closes. Your broker then calculates the MTM obligation for every open position in your account and either credits your ledger or raises a debit.

For most retail traders, this reflects in your trading account balance by the start of the next trading session, and shows up in that day's contract note. If the MTM debit is large enough to breach your minimum margin requirement, you'll typically see a margin call notice from your broker before the next session begins, not a surprise deduction with no warning.

This daily cycle is also why F&O positions need active cash-flow management, unlike a stock you buy and hold. A trader carrying multiple open lots overnight needs to keep enough free balance in the account to absorb an adverse MTM swing, not just the initial margin.

Why It Matters to Traders

MTM matters because it turns "the trade hasn't hit my stop-loss yet" into a same-day cash flow event. A position that's perfectly fine on your trading thesis can still trigger a margin call if the MTM loss on a volatile day eats through your available margin. Getting squared off involuntarily is a very different outcome than exiting on your own terms.

It also affects how you should size positions. If you're holding futures overnight, you're committing to fund whatever the daily MTM swing turns out to be, every single day the position stays open, not just the gap between entry and stop-loss.

Common Misunderstandings