Mark-to-Market Explained for Futures Traders
Mark-to-market is the daily process that updates your futures account balance based on settlement prices, and if you do not understand mark-to-market, you do not understand how your real P&L is calculated.
What Mark-to-Market Actually Means
Futures are settled every single trading day. The exchange takes the settlement price, compares it to your entry or prior settlement, and adjusts your balance—credit if you made money, debit if you didn’t. This is how futures stay cash-settled day by day instead of at the end of the contract.
If this sounds similar to margin requirements, it’s because mark-to-market is one of the reasons margin exists at all.
Why Futures Use Mark-to-Market
The exchange wants zero credit risk. They do not want traders holding losing positions they cannot pay for. Daily settlement keeps the system clean and ensures losses are realized immediately.
Benefits (for the exchange, not you)
- Losses are settled daily, not at expiration.
- Everyone’s account equity is always up to date.
- No one can “run away” from losses by holding to expiry.
- Margin calls happen the moment your equity drops too far.
How Daily P&L Is Calculated
The formula is simple, and you better know it cold:
Daily P&L = (Settlement Price Today − Settlement Price Yesterday) × Contract Value per Point
That contract value comes from your tick/point structure. If you forgot that, go refresh with ticks, points, and dollar value.
Example: Mark-to-Market in Action
Say you’re long one ES contract:
| Day | Settlement Price | Change | Daily P&L |
|---|---|---|---|
| Day 1 | 4800.00 | – | – |
| Day 2 | 4806.00 | +6 | + $300 |
| Day 3 | 4799.50 | -6.5 | - $325 |
Your account goes up $300 after Day 2, then down $325 after Day 3. You never closed the trade—mark-to-market handles the adjustments anyway.
How Mark-to-Market Impacts Your Margin
Daily losses reduce your account equity. If those losses drop you below maintenance margin, you get flagged. Keep pushing it and you’ll trigger a margin call and possibly get force-liquidated.
Key consequences
- Your position can stay open, but your cash cannot dip below minimum requirements.
- Even a strong long-term idea gets killed if daily swings crush your margin.
- Your broker doesn’t care about your conviction—only your equity.
The Bottom Line
Mark-to-market is the backbone of futures accounting. It updates your balance daily, decides when margin calls hit, and keeps the entire system solvent. If you want to trade futures seriously, you track settlement prices and stay well above margin limits—because mark-to-market doesn’t care about your plans, it only cares about math.