Mark to Market (MTM) is the process of revaluing your open trading positions at the end of each trading day to determine profit or loss based on current market prices. This daily revaluation ensures your account holds sufficient margin to cover potential losses.
After trading hours, the exchange performs MTM calculations daily based on the day's closing price. The exchange settles the profit and loss (P&L) to your trading account on the same day and will not reflect it in your positions on the following day.
Futures
For futures contracts, the exchange calculates MTM daily after trading hours based on the day's closing price. The resulting profit or loss (P&L) is settled in your trading account on the same day. Because of this daily settlement, the P&L does not carry forward in your open positions on the following day.
The daily P&L for a futures contract is calculated as: (Current day's closing price - Previous day's closing price) × Lot size
For a newly opened position, the entry price is used instead of the previous day's closing price. The total P&L is the sum of these daily MTM settlements until you close the position.
Example scenario
Assume you buy a futures contract of any index or stock:
- Buy price: ₹100
- Sell price: ₹102
- Lot size: 9,500 shares or units
- Total contract profit: (₹102 - ₹100) × 9,500 = ₹19,000
The table below shows how the daily MTM is applied, assuming the closing prices of the contract over four days are ₹101, ₹100, ₹101.5, and ₹102.3:
| Day | Ref price for MTM (a) | Closing price (b) | Profit and loss (b-a) | Daily MTM (P&L * Lot size) |
| 1 | 100 | 101 | 1 | 9500 |
| 2 | 101 | 100 | -1 | -9500 |
| 3 | 100 | 101.5 | 1.5 | 14250 |
| Sum of the MTM for the first three days | 14250 | |||
On day 4, you square off the position at ₹102. The MTM is calculated using the selling price:
| Day | The reference price for MTM | Sell price | Closing price | Profit (Sell price - reference price for MTM) | Profit (0.5 * Lot size) |
| 4 | 101.5 | 102 | 102.3 | 102 - 101.5 = 0.5 | 0.5 * 9500 = 4750 |
Total settled P&L: ₹14,250 (Sum of MTM for the first three days) + ₹4,750 (Day 4 MTM) = ₹19,000
The sum of the daily MTM settlements matches the overall profit of ₹19,000. After squaring off the position at ₹102, subsequent changes in the contract's price do not affect your P&L. Zerodha credits the final day's profit of ₹4,750 to your trading account by the end of 4th the day.
Options
Unlike futures, short option trades are not settled daily in cash by the exchange. Instead, Zerodha manages this risk by blocking funds from your account as margin. When you sell options, SPAN and exposure margins are blocked upfront based on exchange requirements. If the option moves against your position, the loss and margin requirement can increase quickly, and this intraday loss is blocked by Zerodha as additional margin.
Since there's no separate cash settlement, the Funds page does not show a distinct MTM value. Instead, the loss is included in the used margin and reduces the available cash displayed.
This block resets at the start of the next trading day, when Zerodha recalculates margins based on the new day's beginning of day (BOD) parameters prescribed by the exchange. If the position moves into profit, no fresh MTM loss is blocked.
Example scenario 1: How MTM blocks are adjusted the next day
Assume you have a short option position for which ₹50,000 is already blocked as SPAN and exposure margin. During the day, the position moves against you, and Zerodha blocks an additional ₹15,000 as an MTM loss. So the total margin blocked for the day is ₹65,000 (₹50,000 + ₹15,000).
By the end of the day, the exchange recalculates the margin requirement for this position, and it goes up by ₹5,000, making the new requirement ₹55,000 (₹50,000 + ₹5,000).
- The next morning, the entire ₹65,000 blocked the previous day (including the ₹15,000 MTM block) is released.
- Fresh margin is blocked based on the new day's BOD parameters, which come to ₹55,000.
- Since ₹65,000 was released and only ₹55,000 is blocked afresh, the net margin released back to your account is ₹10,000 (₹65,000 − ₹55,000).
This ₹10,000 is the ₹15,000 MTM block getting released, adjusted for the ₹5,000 increase in margin requirement.
Example scenario 2: Cash and collateral usage after an MTM loss
Starting position: ₹1,00,000 in cash and ₹1,00,000 in non-cash collateral.
- An F&O position is taken that blocks ₹80,000 as SPAN and exposure margin.
- For F&O positions, at least 50% of the required margin must be maintained in cash or cash-equivalent collateral, with the remaining 50% from non-cash collateral. So ₹40,000 is used from cash and ₹40,000 from collateral. This leaves ₹60,000 available in cash.
- An MTM loss of ₹5,000 occurs during the day. The Funds page now shows available cash as ₹55,000.
- When placing a new order, the full ₹60,000 can still be used as cash margin, because the ₹5,000 loss is adjusted against the collateral, not the usable cash margin.
Things to keep in mind
- While futures settle daily through MTM cash transfers, option and equity positions do not. However, intraday MTM losses on short option positions are blocked as margin.
- The exchange updates MTM in real time; however, it reflects on your funds statement only at the end of the day.
- Realised MTM P&L for a closed position does not reflect on Kite during the day. It is updated in your Console funds statement at the end of the day and appears on Kite the next day.
- If your position faces a loss and your account has an insufficient balance, Zerodha may square off your position, and the exchange may levy a margin penalty.
- If a security is not traded on a particular day, the latest available closing price is used for MTM.
- Unrealised MTM losses or gains on open positions are displayed on Kite until they are squared off.
To learn more about MTM, visit
Margin & M2M module
on Varsity.