Margin and Mark-to-Market

What this unit covers

Learn how margin and daily mark-to-market settlement work in a futures position, with a worked example showing gains and losses settled every day, not only at the end.

By the end you will be able to

• Explain why a futures account changes daily, even without closing the position.
• Describe margin as a buffer that absorbs daily gains and losses.
• Calculate a day's mark-to-market gain or loss using the previous day's price.

How it starts: The Overnight Change

1. You hold a futures position you have not touched since yesterday.
2. You open the app and see your account balance is different this morning.
3. You have not sold anything, so what actually changed overnight?

Words you will meet

Initial margin

The deposit put down to open a futures position, meant to absorb daily gains and losses.

Settlement price

The official closing price the exchange uses each day to work out that day's gain or loss.

Margin call

A broker's request for more money when your margin balance falls too low.

In this module: Futures

1. Purpose and Mechanics of Futures
2. Contract Specifications, Lot Size & Expiry
3. Margin and Mark-to-Market (this unit)
4. Basis, Rollover & Settlement