Concept
Mark to Market and Margin Calls
Mark to market revalues open positions at the end of each day and settles the difference in cash. A margin call arises when the balance falls below the required margin after that settlement.
How to read it
- MTM is settled daily, not at exit. Money moves in or out each day based on the change in settlement price, so an open position affects the balance continuously.
- A margin shortfall occurs when the account no longer covers the required margin, either because losses reduced the balance or because the requirement rose.
- Brokers typically require the shortfall to be met within a defined window, failing which they may reduce or close positions.
How a position can be closed before it works
A trader holds two lots of an index future with ₹2.5 lakh in the account. Over three sessions the index moves against them by a cumulative 1.8%, producing roughly ₹52,000 of MTM debits. Simultaneously, rising volatility increases the margin requirement by about ₹30,000. The account has lost ₹52,000 and now needs ₹30,000 more than before — a shortfall arises even though the position has not been closed. If it is not met, the broker may reduce the position. If the index then recovers, that recovery arrives after the position was cut. Nothing malfunctioned; this is how daily settlement combined with dynamic margin behaves, and it is why capital planning matters as much as entry selection.
What it does not tell you
- Because MTM settles daily, a position that eventually recovers can still have drained the account in the interim and been closed before the recovery arrived.
- Margin requirements rise in volatile conditions, so calls tend to arrive when markets are moving fastest and adding funds is least convenient.
- Broker policies on notice periods and forced closure differ, and the specifics matter. Check yours rather than assuming an industry standard.
Frequently asked questions
What does mark to market mean?
Open positions are revalued at each day’s settlement price and the difference is settled in cash. Profits and losses move through the account daily rather than only at exit.
What happens if I cannot meet a margin call?
The broker may reduce or close positions to bring the account back within requirements. Specific timelines and procedures vary by broker.
Why did I get a margin call when my position was not closed?
Because MTM losses are debited daily and margin requirements can rise at the same time. Both reduce available margin without the position being exited.
Does MTM apply to options I have bought?
A long option position is paid for upfront and does not carry the same daily obligation as a futures position. Short option positions carry margin and are subject to daily settlement.
Related
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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