Margin & Mark to Market (M2M)

After learning about leverage, Rajesh looked thoughtful.

“Priya, I understand that I only pay the margin. But what happens after I enter the trade? Do I just wait till I exit?”

Priya shook her head.

“No. Futures trading does not work like that. Your profit and loss are calculated every day.”

Rajesh looked surprised.

“Every day?”

“Yes,” Priya said. “That is called Mark to Market, or M2M.”

Why Margins Are Required

Priya began with the basics.

“In futures trading, both buyer and seller are taking risks.”

To ensure that neither party defaults:

• Both must deposit a margin
• Margin acts as a security deposit

Rajesh said, “So margin protects the system?”

“Exactly,” Priya replied.

Types of Margins (Basic Understanding)

Priya simplified the idea.

When you enter a futures trade, you need:

• Initial margin → to start the trade
• Maintenance margin → minimum balance to continue

If your balance falls below the required level, action is taken.

What is Mark to Market (M2M)?

Rajesh asked, “Now explain M2M.”

Priya explained clearly.

Mark to Market means:

• Profit or loss is calculated daily
• Based on daily closing price
• Money is adjusted in your account

How M2M Works

Priya broke it down.

At the end of each trading day:

• If the price moves in your favor → profit is credited
• If price moves against you → loss is deducted