[] [] [prev-tail] [tail] [up]

Mark-to-market of Positions

Mark-to-market (MTM) is the accounting that reprices every open futures position to the official settlement price at the end of each trading day and moves the day’s gain or loss through your account in cash. There are no hidden losses in a futures account; there is only the cash that left it overnight.

Daily Pricing

At the end of each trading day, the exchange determines the settlement price of each futures contract. This price is based on the last trade or a calculated average of trades during the settlement period.

Cash Adjustments

The difference between the previous day’s settlement price and the current day’s settlement price is calculated. This difference is then credited or debited to the trader’s account, reflecting the day’s profit or loss.

Margin Requirements

Futures trading requires maintaining a margin account, which acts as collateral to cover potential losses. The MTM process directly impacts the cash balance in this account. If the account balance falls below the maintenance margin requirement due to daily losses, the trader must deposit additional funds (a margin call) to continue holding the position.

Daily settlement is how the clearinghouse manages default risk: no participant ever carries more than one day’s unpaid loss, which is what lets it guarantee every contract against every counterparty. It is exchange and clearinghouse rule, enforced through the margin standards of 17 CFR § 39.13 described above, not an accounting convention.

Examples Imagine you hold a Crude Oil futures contract (/CL) from the previous day’s close, and the settlement price drops by $1.20. If you are long (betting the price will rise), you incur a mark-to-market loss of $1,200 and your account is debited that evening — each contract represents 1,000 barrels, so the per-barrel change is multiplied by 1,000. If you were short, the same move goes the other way: your account is credited $1,200. Every dollar debited from one side is credited to the other — that is what makes the market zero-sum in cash flows (section “Zero-Sum Game — and Where It Is Not”).

Now, consider you buy a June E-mini S&P 500 Index futures contract (/ESM) at a price of 6,000, and the official settlement that day is 5,988.75. Being long at 6,000 means you’ve realized a mark-to-market loss of $562.50, as each point in /ES is worth $50. Your account is debited $562.50.

Hold the position and the same arithmetic repeats every session, based on the difference between the previous day’s settlement and the current day’s. For example:

This mark-to-market process continues until you close the position. Once closed, you sum all mark-to-market adjustments and any cash debits or credits from closing the position to calculate your overall profit or loss, excluding transaction costs.

The practical consequence is one most people miss until it bites: an unrealized loss in a futures account is not unrealized. It is cash, leaving your account, tonight. A stock position can sit underwater indefinitely while you wait to be proven right; a futures position bills you daily for the privilege, and when the cash runs out the position is closed whether or not you were right. Fund the position to survive the path instead of assuming a smooth destination.

[] [] [prev-tail] [front] [up]