The process in futures trading where open positions are revalued at the end of each trading session, and profits or losses are realized and added to or deducted from the trader’s account balance. This means gains and losses are settled daily rather than only when a trade is closed.
Why It Matters
- 1Mark-to-market ensures that losses are accounted for in real time, which directly impacts account equity and margin requirements.
- 2It plays a key role in risk management and can trigger margin calls or affect drawdown limits in prop firm accounts.
Example
- 1A trader holds a futures contract overnight.
- 2At the end of the trading day, the market price moves in their favor, resulting in a $1,000 gain.
- 3This profit is added to their account balance.
- 4If the price had moved against them, the loss would be deducted instead.
Common Mistakes
- ✖Assuming profits or losses are only realized when a trade is closed
- ✖Ignoring the impact of daily settlements on account balance
- ✖Not accounting for mark-to-market when holding positions overnight
- ✖Confusing mark-to-market with unrealized profit and loss