4 Important Things To Know About Mark-To-Market (MTM) In Trading

If you have held a trade overnight and checked your account the next day, you have probably seen the numbers change on their own.

Nothing was sold. Nothing was bought. Still, the profit or loss looks different.

Put simply, Mark-to-Market is the process of valuing your position at the current market price.

If you are an investor, read on to find out four important things to know about Mark-to-Market (MTM) in trading

1. Mark-to-Market Reflects Daily Profit And Loss

Once the market closes, your holding is revalued based on the closing price.

If you bought a stock at ₹100 and it ended at 103, that difference gets recorded in your account for that day.

If it drops to ₹97, the loss shows the same way. So, the numbers change each day based on price. But the position remains open.

This means that the number you see is not final. The number you see isn’t fixed; it can look different the very next day.

That’s really what the MTM meaning in trading is: a running number, not the final result.

2. MTM Is Commonly Used In Futures And Margin Trading

MTM is most commonly seen in futures and margin trades, essentially situations where you are taking a larger position without putting in the full amount upfront.

At the end of each trading day, gains are added to your account and losses are deducted. If the loss goes beyond the maintenance margin, you are required to add funds.

This daily adjustment is part of how these markets function. Since prices do not stay still, positions are updated daily. It helps catch losses early instead of allowing them to accumulate unnoticed.

3. MTM Differs From Realised Profit And Loss

This is where most confusion starts. Let’s say your position shows a profit today. That’s MTM.

But if you haven’t closed the trade, that profit isn’t locked in. Tomorrow, the price can move the other way.

So:

• MTM keeps changing

• Realised profit is fixed

Once you exit the trade, whatever profit or loss you have becomes final. Until then, it’s just where things stand at that moment.

4. MTM Is Based On Exchange Closing Prices

MTM is calculated based on the official settlement price set by the exchange at the end of the trading day.

This matters because the closing price is standardised. Everyone’s position is valued on the same number, not on scattered price points from the day.

Prices may move all day, but MTM only gets applied once the market shuts, using that closing level. That’s what keeps the calculation clean and consistent across accounts.

How Mark-to-Market Is Calculated

At its core, MTM just answers one question. What is your position worth right now? Here’s how you figure that out:

1. Current Value Of Your Position To figure out your current value, just multiply how many units you hold by the market price.

Current Value = Units * Current Market Price

So, if you’ve got 100 shares and they’re trading at ₹52, that puts your position at ₹5,200.

2. Unrealised Profit Or Loss Now compare that with the price you bought at. That’s how you know whether you’re sitting on a gain or a loss. This tells you whether you’re in profit or loss.

Unrealised P&L = (Current Price − Purchase Price) * Units

If you bought at ₹50 and it’s now ₹52, you’re up by ₹200.

This is not booked yet because you haven’t sold it.

3. Daily MTM In Futures Trading In futures trading, MTM isn’t something you calculate once and forget. It’s checked every day. The change is taken from the previous day’s closing price, not your entry price.

Daily MTM = (Current Day’s Closing Price − Previous Day’s Closing Price) * Lot Size * Number Of Lots

This is why your balance keeps changing every day in futures trading. Gains are added, and losses are deducted daily.

In short, MTM keeps everything tied to the latest price. It shows where you stand right now, not where you started.

Conclusion

Mark-to-Market accounting is something you’ll see almost every day if you trade actively. It doesn’t tell you the outcome, but it tells you where you stand.

Once you understand that, those daily changes stop feeling confused and start making sense.

Sources:

Actuaries India

Investopedia