Hi, in this video we will be learning all about mark to market trading.

Hi, in this video we will be learning all about mark to market trading. As we know the futures price fluctuates daily because of which we either tend to make a profit or a loss.

Marking to market or mark to market is a simple accounting procedure which involves adjusting the profit or loss we have made for the day and entitling us the same as long as we hold the futures contract mark to market is applicable. It is a margin that is collected from a stockbroker over and above the regular initial margin from the trader. It basically results in the daily settlement of profits and losses by the traders due to the changes in its market value.

Let us assume you have purchased one lot of reliance in the futures market at rupees 1000. The lot size of reliance futures is of 500 shares hence the contract value is equal to lot size into share price that is 500 into thousand that is rupees 5 lakhs. Suppose the initial margin is 10 percent of the contract value then the initial margin you paid is 10 percent of 5 lakhs that is rupees 50 000. At the end of the trading session around 3 p.m that is just before the market is closing if the price of reliance is trading at Rs 920 the broker may ask you to pay the difference between the price you bought and the closing price that is rupees thousand minus rupees 920 which will be rupees 80 into 500 shares that is rupees 40,000 to carry the position to the next day. This difference of rupees 40,000 due to closing price and the trade price is marked to market.

So, in the above example we discussed about two margins the initial margin and mark to market margin. Initial margin is the initial rupees 50,000 paid that is 10 of rupees 5 lakhs and the additional rupees 40,000 which is arising as the difference between trade value and closing price of the stock is marked to market the next day. If you are continuing with your position in the stock the mark to market will be calculated as the difference of prices between today\\\’s closing and next day\\\’s closing that means if the price of reliance closes at rupees 1005 tomorrow, difference in price is rupees 85 that is 1005 minus 920 so rupees 85 into 500 that is rupees 42,500 will be credited into your trading account.

Daily mark to market is an integral feature, it is daily debited or credited to the trading account of the client we must also note that different brokers may charge different margins from clients based on the size of the client the volumes they trade their interpersonal relationship or how old or new the client has been associated to the broker. Old loyal clients or large clients may be charged less margins by the broker compared to new ones or those trading in small volumes mark to market margin is an important Feature as it reduces counterparty risk for investors in futures contracts it also ensures that at the end of any trading day when the daily settlements have been made there will not be any outstanding obligations which indirectly reduce credit risk.

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