Margin & Mark-to-Market
Why your account is settled every single day, and how a margin call sneaks up on you.
Futures aren’t settled only at expiry — they’re settled every single day through a process called mark-to-market (MTMDaily revaluation of positions to current prices.). Each day, the day’s gain or loss is credited to or debited from your account in real cash. Understanding this is what stops a margin callThe deposit required to hold a leveraged position. from blindsiding you.
Mark-to-market means your paper loss becomes a real cash debit, daily — and that’s how leverageControlling a large position with a small amount of money. quietly forces your hand. You post an *initial marginThe deposit required to hold a leveraged position.* to open the position; then every day the exchangeA regulated marketplace where shares are bought and sold. settles the move and adjusts your balance. If losses eat into your marginThe deposit required to hold a leveraged position. past a threshold, you get a *margin callThe right, not the obligation, to buy or sell at a set price.* — a demand to add cash immediately, or your position is auto-squared-off (often at the worst moment). Unlike a stock, where you can sit through a drawdownThe worst peak-to-trough fall in a portfolio. indefinitely, futures force you to fund your losses day by day. The position can be right eventually and still get liquidated today because you ran out of margin. MTMDaily revaluation of positions to current prices. is why undercapitalised futures traders get knocked out even when their direction was correct.
- Initial marginThe deposit required to hold a leveraged position. — the deposit required to open the position (a fraction of contract value; the source of leverageControlling a large position with a small amount of money.).
- Mark-to-market (MTMDaily revaluation of positions to current prices.) — daily settlementHow long after a trade ownership and cash settle.: the day’s P&LA record of revenue, costs and profit over a period. moves real cash in/out of your account.
- Maintenance marginThe deposit required to hold a leveraged position. & margin callThe deposit required to hold a leveraged position. — if your balance falls below a threshold, you must top up immediately or be forcibly squared off.
ExampleYou post ₹1,10,000 marginThe deposit required to hold a leveraged position. on a NiftyA basket of stocks tracked together to represent a market. futureA binding agreement to buy or sell at a set price on a future date.. Day 1 the NiftyA basket of stocks tracked together to represent a market. drops 1% (~₹11,000 loss) — debited from your account that evening. A few such days and your marginThe deposit required to hold a leveraged position. nears the maintenance level; the brokerAn intermediary licensed to execute your trades. issues a margin callThe right, not the obligation, to buy or sell at a set price.. If you can’t add funds, your position is liquidated — even if the Nifty rebounds the very next day.
Common mistakeHolding a leveragedControlling a large position with a small amount of money. futureA binding agreement to buy or sell at a set price on a future date. with no spare cash buffer, assuming you only need the initial marginThe deposit required to hold a leveraged position.. Daily MTMDaily revaluation of positions to current prices. losses can trigger a margin callThe deposit required to hold a leveraged position. mid-trade; without a buffer you’re forced out at the bottom. Always keep surplus funds beyond the bare initial margin.
Key takeawayFutures are marked-to-market daily — each day’s P&LA record of revenue, costs and profit over a period. moves real cash, and losses eroding your marginThe deposit required to hold a leveraged position. trigger a margin callThe deposit required to hold a leveraged position. (top up or be auto-squared-off). Unlike stocks, futures force you to fund losses day by day, so keep a cash buffer beyond initial margin.
FAQs
How much cash buffer should I keep beyond initial margin?
Enough to absorb several days of adverse MTM without breaching maintenance margin — the more leveraged and volatile the position, the bigger the buffer. Many disciplined traders use well below the maximum leverage available precisely so normal swings can’t trigger a forced exit. Sizing by potential loss (not minimum margin) is the safeguard.