Most new traders believe a futures profit or loss becomes real only on the day they exit the trade. That is true for a delivery share sitting in your demat account. It is completely false for a futures contract. In the futures market, your gain or loss is measured, settled in cash, and moved in or out of your trading account every single evening through a process called mark to market. Understanding mark to market in futures is the difference between a trader who is surprised by a margin call and one who saw it coming three days earlier. This guide explains exactly how daily MTM settlement works, with a worked Nifty example you can follow number by number, the difference between SPAN, exposure and MTM margins, and how margin calls actually get triggered.
What "mark to market" actually means in futures
Mark to market, usually shortened to MTM or M2M, is a daily accounting procedure. At the close of every trading day, the exchange revalues your open futures position at that day's official settlement price and settles the difference from the previous day in cash. If the price moved in your favour, cash is credited to your account. If it moved against you, cash is debited.
Contrast this with buying shares for delivery. If you buy a stock and it falls, nothing leaves your account until you actually sell. Your loss stays "on paper". Futures work differently because they are leveraged contracts settled through a clearing corporation, and the clearing corporation cannot afford to let unrealised losses pile up. So it collects them daily.
Every evening, mark to market effectively closes your position at the settlement price and reopens it fresh the next morning — turning your running profit or loss into real cash movement.
There is a solid reason the system works this way. A clearing corporation stands between every buyer and every seller, guaranteeing that winners get paid even if losers default. If losses were allowed to accumulate silently until expiry, one large adverse move could leave a trader owing far more than they can pay, and that risk would ripple through the whole market. Daily settlement keeps the outstanding risk small and current, which is why the same discipline applies to every futures trader, from a single retail lot to an institutional book.
This single mechanic drives almost everything else that confuses beginners: why your account balance changes even when you have not traded, why a big adverse move can force a same-week margin call, and why "I never booked the loss" is not a defence in the derivatives segment. If you want this foundation built properly rather than pieced together from scattered videos, a structured derivatives and options trading course compresses years of trial and error into a few focused weeks.
How the daily settlement price is set
MTM is only as fair as the price it uses. The exchange does not simply grab the last traded price at 3:30 PM, because a single stray trade could distort it. Instead, the daily settlement price for a futures contract is calculated as the volume-weighted average price (VWAP) of the last 30 minutes of trading, according to NSE Clearing's published settlement methodology.
If a particular contract does not trade in that final half hour, the exchange computes a theoretical settlement price using the cost-of-carry formula F = S x e^(rt), where S is the spot level, r is the interest rate and t is time to expiry. This keeps thinly traded far-month contracts honestly priced rather than frozen at a stale number.
The credit-or-debit step
Once the settlement price is fixed, the clearing corporation compares it with the previous day's settlement price (or your actual entry price on day one). The difference, multiplied by your lot size, is the MTM amount. This is collected or paid before the start of the next trading day, on the gross open position — so a fresh loss must be funded overnight, not "sometime later".
The important mental model: your reference price resets to each day's close. Yesterday's settlement becomes today's starting line. The chart below shows how a single position gets re-benchmarked day after day.
Each day's closing price becomes the next day's reference for MTM
Source: illustrative price path; daily settlement uses last-30-minute VWAP per NSE Clearing methodology.
We explain the end-of-life version of this process — how a contract is finally squared off — in our guide to how futures contracts are finally settled.
A worked mark to market example, day by day
Numbers make this concrete. Assume you buy one Nifty 50 futures lot of 65 units at an index level of 25,000. You hold it for four days and then exit. Watch how the same position produces four separate cash settlements before your final result.
| Day | Reference | Settlement | Points | Daily MTM (x65) |
|---|---|---|---|---|
| Day 1 | 25,000 | 25,120 | +120 | +₹7,800 |
| Day 2 | 25,120 | 24,980 | -140 | -₹9,100 |
| Day 3 | 24,980 | 25,060 | +80 | +₹5,200 |
| Day 4 (exit) | 25,060 | 25,150 | +90 | +₹5,850 |
| Net cash (sum of daily MTM) | +₹9,750 | |||
Notice two things. First, on Day 2 you paid out ₹9,100 in real cash even though you had not sold anything and were still, overall, close to break-even from your entry. That overnight cash demand is what catches leveraged traders off guard. Second, the four daily settlements add up to exactly +₹9,750, which equals (25,150 minus 25,000) multiplied by 65 — your simple entry-to-exit profit. Daily MTM never changes your total result; it only changes the timing of the cash.
Daily MTM splits one +₹9,750 gain into four separate cash settlements
Source: illustrative worked example (Nifty lot size 65); MTM mechanic per NSE Clearing.
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Beginners lump every deposit into one word: "margin". In reality three different amounts are in play, collected at different times for different reasons. Getting them straight is what stops you from over-committing capital.
SPAN margin is the initial margin. NSE Clearing calculates it using a system called SPAN, designed to cover a 99% value-at-risk over a one-day horizon (a two-day horizon for futures, where the next day's MTM cannot be collected in advance). In plain terms, it is the exchange's estimate of the worst loss your position could reasonably suffer in a day, and it is blocked upfront.
Exposure margin sits on top of SPAN as an additional cushion. For index futures it is 3% of the contract's notional value, per NSE's margin rules. On a Nifty lot with a notional value of roughly ₹16 lakh at an index level near 25,000, that 3% alone is about ₹48,000 before SPAN is even added.
MTM margin is different from both — it is not a deposit blocked in advance but the actual daily profit or loss settled in cash, as we saw in the worked example. The table below lines them up.
| Question | Initial margin (SPAN + exposure) | MTM margin |
|---|---|---|
| What is it? | A deposit blocked to cover potential one-day risk | The actual daily gain or loss on your position |
| When collected? | Upfront, before you can place the trade | After market close, before the next day opens |
| Basis | 99% VaR (SPAN) + 3% notional (exposure) | Change in daily settlement price x lot size |
| Returned to you? | ✓ Released when you exit the position | ✗ Losses are gone; profits are yours to keep |
For the full picture of what you must deposit before you can even enter a trade, our detailed explainer on margins for trading in futures breaks the components down further.
Margin calls, square-offs and expiry
Here is where mark to market stops being theory and starts costing money. Because MTM losses are debited daily, your usable balance can quietly erode. When your account's cash and eligible collateral fall below the required margin, your broker issues a margin call — a demand to add funds. If you do not top up, the broker is entitled to square off your position to recover the shortfall, often at a moment you would never have chosen.
The daily cycle that produces this is simple to picture, and worth memorising:
On expiry day the last MTM cycle runs against the final settlement price, and all open positions are closed against it. For index futures the result is settled in cash. For stock futures, positions carried to expiry go into physical delivery — you may have to give or take actual shares, which is a costly surprise for anyone who forgot to roll or exit. Nifty monthly contracts expire on the last Tuesday of the month (the previous trading day if that Tuesday is a holiday).
The common retail mistakes cluster around ignoring MTM:
- Sizing a position against the initial margin alone, leaving no buffer for a bad MTM day.
- Treating an unrealised loss as "not real" while cash is already leaving the account.
- Holding stock futures into expiry without realising physical delivery obligations apply.
- Ignoring the reference reset, and misreading the next day's small move as the whole loss.
If you are still deciding whether futures even suit you, compare the trade-offs in our guide to futures vs options for a first-time trader.
Turning mark to market from a surprise into a plan
Mark to market is not a trap; it is a discipline. Once you accept that a futures position settles in cash every night, you plan for it: you keep a cash buffer beyond the initial margin, you decide your exit before the MTM decides it for you, and you never confuse "I have not sold" with "I have not lost". The traders who survive leverage are the ones who treat each evening's settlement as feedback, not as a shock.
A practical rule many experienced traders follow is to hold cash worth at least one to two full days of a realistic adverse move on top of the initial margin, so a single red day never forces an exit at the worst possible price. Combine that buffer with a pre-decided stop level, and MTM becomes a quiet daily reconciliation rather than an emergency. The mechanic that scares beginners is the same one that keeps disciplined traders honest.
Start with the mechanics in this guide, then build the position-sizing and risk habits that make daily settlement a non-event. That is exactly what structured training is for.
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Start the Advance Derivatives & Options CourseFrequently Asked Questions
What is mark to market in futures trading?
Mark to market (MTM) is the daily settlement of a futures position. At each day's close, the exchange revalues your position at the official settlement price and settles the gain or loss from the previous day in cash — crediting profits and debiting losses to your trading account before the next day begins.
Is MTM profit or loss added to my account every day?
Yes. Unlike delivery shares, a futures position is settled daily. Any profit is credited and any loss is debited in cash after market close, based on the change in the daily settlement price multiplied by your lot size. Nothing waits until you exit.
How is the daily settlement price for futures calculated?
It is the volume-weighted average price of the contract during the last 30 minutes of trading, as published by NSE Clearing. If a contract is not traded in that window, a theoretical price using the cost-of-carry formula F = S x e^(rt) is used instead.
What is the difference between SPAN margin and MTM margin?
SPAN margin is an upfront initial deposit covering potential one-day risk, blocked before you trade. MTM margin is not a deposit at all — it is the actual daily profit or loss on your open position, settled in cash each evening. You need enough balance to absorb adverse MTM without breaching the SPAN requirement.
What triggers a margin call in futures?
A margin call is triggered when accumulated MTM losses pull your account's cash and eligible collateral below the required margin. Your broker asks you to add funds; if you do not, the broker can square off your position to recover the shortfall.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. Markets carry risk — please do your own research or consult a qualified financial professional before investing. NIFM provides training and exam preparation; certification exams conducted by regulatory or professional bodies are administered by those bodies independently.
