Mark-to-Market (MTM) in Futures: How Daily Settlement Works

A futures contract is a promise, not a purchase

Quick refresher, because MTM only makes sense once this part is clear.

A future (short for futures contract) is an agreement to buy or sell something at a fixed price on a fixed future date. On Indian exchanges — the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) — you can trade futures on indices like the Nifty 50 and on individual shares like Reliance.

When you buy a future, you do not pay the full value up front. You put down a good-faith deposit called margin — a fraction of the contract's value that the exchange holds as security.

That is the catch. Because you only paid a deposit, the exchange is carrying risk on a position worth far more than the cash you put in. If your position moves against you, the exchange wants the loss settled as real money, quickly — not as an IOU piling up until expiry.

Mark-to-market is how it makes sure of exactly that.

What mark-to-market actually does

Here is the whole idea in one line: a futures position is not settled once at the end. It is settled a little bit every single day.

At the close of each trading day, the exchange picks an official price for your contract — the daily settlement price, the end-of-day price it uses to settle everyone's gains and losses (more on exactly how it's set shortly). Then it compares that price with the price from the day before.

If your contract is worth more than yesterday, the profit is credited to your account in cash. If it is worth less, the loss is debited from your account in cash.

Then — and this is the clever part — your position is reset to that day's settlement price. Tomorrow's profit or loss will be measured from this new price, not from where you originally bought.

It is like a shopkeeper who, instead of waiting until the end of the month, tallies your tab every night and asks you to pay up or pays you back, then starts a fresh tab in the morning.

This is why MTM is also called daily settlement. The exchange does not wait for the contract to expire to find out who owes whom — it works out each day's profit and loss against the settlement price and moves the money between accounts.

At the clearing level this money movement runs on a T+1 cycle. "T" is the trading day, so T+1 simply means the next trading day — that is the schedule NSE Clearing uses for MTM pay-in and pay-out. Your broker may show the debit or credit in your funds as early as the next session, but when exactly it lands in your ledger can vary a little by broker.

The lesson that matters is simpler than the timing: treat MTM as real cash leaving or entering your account, not a number that only lives on a screen.

Here is the same daily cycle as a sequence, the way it actually unfolds each evening.

The daily settlement price — the number everything hangs on

The whole exercise depends on one number: the price the exchange marks you to. So it cannot be a number anyone can fiddle with.

A single closing tick would be too easy to push around — one large order in the last second could move it. So the NSE does not use the last trade. It uses an average.

On the day the contract finally expires, a different number takes over — the final settlement price. For an index future like the Nifty, that is just the closing level of the index itself in the regular share market on expiry day.

One detail worth knowing, because it changed recently: NSE monthly futures now expire on the last Tuesday of the month, not the last Thursday as they did for about 25 years. The shift took effect from September 2025. (BSE's Sensex contracts expire on the last Thursday.)

A worked Nifty example, day by day

Numbers make this click far faster than words, so let's trade one contract together. These figures are illustrative, but the method is exactly how it works.

One Nifty 50 futures contract is a bundle of 65 units of the index — that bundle size is called the lot size. The exchange sets it and revises it now and then: by an NSE circular it became 65 for contracts from January 2026, down from 75 before. So with a lot size of 65, every one-point move in the Nifty is worth ₹65 to a single contract.

Say you buy one Nifty future on Monday at a level of 24,000, expecting the index to rise. Buying because you think the price will go up is called being long — so you are now long one Nifty future.

You hold a position, and from this evening onward it gets marked to market every day. Each evening's figure follows one simple rule.

Look at Tuesday. The Nifty was still above your buy price of 24,000 — you were sitting on a paper profit. And yet ₹4,550 left your account that day.

That is the mystery from the opening, solved. MTM doesn't care that you're still in profit overall. It only asks one question each night: did the price move up or down since yesterday's close? Tuesday it fell 70 points from Monday's 24,120, so 70 × ₹65 = ₹4,550 was debited.

Now add up the three daily amounts: +7,800 − 4,550 + 9,750 = +₹13,000.

And the simple way? You bought at 24,000 and sold at 24,200. That's 200 points × ₹65 = ₹13,000. Identical.

A quick check before we go on

This one idea trips up almost every beginner, so let's make sure it has landed. No pressure — just pick what feels right.

Why MTM is the part that catches beginners out

If the total is the same either way, why care about the daily drama? Two reasons — and the second is where real accounts get hurt.

Reason one: the cash is real, today. An MTM loss is not a paper number on a screen. It is money actually removed from your trading account, settled the next trading day. You feel it immediately.

Reason two: MTM losses eat your margin. Remember, your position is held up by margin — that deposit with the exchange. When MTM debits a loss, it comes out of that very balance.

Let that run for a few bad days and your balance can fall below the margin the exchange demands. The moment it does, you get a margin call — your broker asking you to top up the account, usually by the next trading day.

So MTM isn't just bookkeeping. It sets the pace at which a losing futures trade drains your account — and how quickly a bad week can end your position whether you like it or not.

It's worth being honest about the stakes. A SEBI study covering FY22 to FY24 found that 93% of individual traders in equity futures and options lost money over those three years.

Daily MTM does not cause those losses — direction and position size do. But it is the mechanism that turns a mistake into real cash leaving the account, day after day, often faster than a beginner expects.

The size of that margin, and how it's calculated, is its own topic — the guide to initial and exposure margin picks up exactly where this leaves off.

Futures vs the shares you bought and forgot

The fastest way to feel what's special about MTM is to set it beside something you may already know — buying shares the ordinary way.

Same direction of bet, completely different daily experience. Daily mark-to-market is unique to futures — it does not happen with shares you've bought and paid for in full, nor with options you've simply bought.

That difference is the whole reason futures feel intense. The leverage that lets you control a large position with a small deposit is the same leverage that makes every day's move land in your account as actual cash.