Mark to Market (MTM) in Indian F&O: How Daily Cash Settlement Really Works

What Mark to Market Actually Means

Mark to Market (MTM) is the daily process of repricing your open derivative positions to the official closing or settlement price set by the exchange, and then settling the resulting gain or loss in cash. It is not an accounting idea that sits quietly in the background. On the NSE, the day's profit or loss on every open futures position is calculated at the end of the session and is actually credited to or debited from your trading account. You do not wait until you close the trade to feel the gain or loss, you feel a slice of it every evening.

The point of MTM is to stop losses from piling up invisibly. In a futures contract you put down only a fraction of the contract value as margin, so a small adverse move can wipe out that margin quickly. By settling profit and loss daily, the exchange makes sure no trader carries a large unpaid loss into the next day. This protects the person on the other side of your trade and keeps the whole clearing system solvent. The trade off is that you must keep enough cash in your account to absorb each day's debit, otherwise you get a margin call.

MTM applies most visibly to futures, where daily cash settlement is automatic. For options buyers, your position is also revalued daily but the loss is capped at the premium you paid, so there is no fresh cash demand beyond that premium. For options sellers, who carry open ended risk, MTM and the margin behind it behave much more like futures and can force additional funds into your account on a bad day.

The Rule Everyone Gets Wrong: MTM Is Points Times Lot Size

The single most common mistake new F&O traders make is to read a point move as a rupee figure. If Nifty moves 200 points in your favour, you have not made Rs 200. You have made 200 points multiplied by the lot size of 65, which is Rs 13,000 per lot. The index level is just a number of points. The rupee value of each point is the lot size, and that is what turns a small looking move into a large cash swing.

This is why two traders watching the same 200 point move can see completely different MTM. A trader long one lot of Nifty sees Rs 13,000. A trader long one lot of Bank Nifty, where a point is worth far more in absolute terms because the index trades near 50,000, sees something different again. The formula never changes: MTM in rupees equals price change in points multiplied by lot size multiplied by number of lots. Always carry the lot size, never drop it.

Worked Example: One Lot of Nifty Futures, Corrected

Take the classic example the old version of this page used and fix it properly. You buy one lot of Nifty futures at 17,500. The lot size is 65, so the notional contract value is 17,500 multiplied by 75, which is Rs 13,12,500. You are controlling over thirteen lakh of exposure with a margin of roughly Rs 1.6 to 2 lakh, which is exactly why daily MTM matters so much.

Now the index closes at 17,700 on day one. The move is 200 points in your favour. Your MTM is 200 multiplied by 65, which is Rs 13,000 credited to your account that evening. If instead Nifty had closed at 17,300, a 200 point loss, then 200 multiplied by 65 is Rs 13,000 debited. The Rs 200 figure on its own was always incomplete. The real cash that moves is Rs 13,000 per lot.

Notice how the daily MTM settles in steps. If you hold the contract over several days, each day is marked against the previous day's settlement price, not against your original entry. So if you bought at 17,500 and day one settles at 17,700, day one MTM is on the 200 point gain. If day two settles at 17,600, day two shows a 100 point loss against 17,700, which is minus Rs 7,500. Your cumulative profit still reflects the move from 17,500, but the cash hits your account day by day in these marked steps.

How Lot Size Changes Everything Across Instruments

Because MTM is points multiplied by lot size, you must know the current lot size of whatever you trade. The NSE revises these periodically, so always confirm the live contract specification before trading. The table below shows how the same notional move translates into very different rupee MTM across popular index contracts, using illustrative figures.

Bank Nifty looks deceptively small per point in this table, but remember Bank Nifty itself often moves several hundred points in a single session because it trades near 50,000. A routine 400 point day on Bank Nifty is 400 multiplied by 35, which is Rs 14,000 of MTM per lot, swinging in or out of your account in one day. This is why position sizing in F&O has to start from rupees of MTM risk, never from points alone.

• Always look up the current lot size before you size a position, because the exchange revises it.
• Compute your worst case daily MTM as your stop in points multiplied by lot size multiplied by lots, in rupees.
• Keep buffer margin beyond the bare minimum so a normal volatile day does not trigger a square off.
• Treat overnight gaps as the biggest MTM risk, since the open can settle far from yesterday's close.

MTM, Margin and the Dreaded Margin Call

The reason MTM is not just a number on a screen is that it directly feeds your margin. When you carry a futures position overnight, your broker requires you to maintain a span plus exposure margin. Each day's MTM loss is debited in cash, which reduces your available balance. If your balance drops below the maintenance requirement, you receive a margin call asking you to add funds. If you do not add them in time, the broker has the right to square off your position to protect itself.

Continuing the Nifty example, suppose you held one lot bought at 17,500 with about Rs 1.8 lakh of margin, and the index falls hard to 17,000 over a session. That is a 500 point move, so the MTM debit is 500 multiplied by 75, which is Rs 37,500 gone from your account in one day. If a further fall the next morning pushes your balance under the maintenance margin, you face a call. Square offs in volatile markets often happen at unfavourable prices, so an unmanaged MTM loss can become a realised loss at the worst moment.

MTM on Options: Buyers Versus Sellers

Options are also marked to market daily, but the experience differs sharply between buyers and sellers. If you buy a Nifty 17,600 call for a premium of 120 points, your cost is 120 multiplied by 75, which is Rs 9,000 per lot. Your position is revalued each day to the option's closing price, but your maximum loss is fixed at that Rs 9,000 premium. No matter how badly the trade goes, you will never owe more than the premium, so there is no fresh cash demand beyond it.

Option sellers are a different story. If you sell that same Nifty call and collect Rs 9,000, your risk is open ended and you must keep margin like a futures trader. Daily MTM can debit large sums if the option moves against you. Say the call premium jumps from 120 to 200 by close, that is an 80 point adverse move, or 80 multiplied by 75, which is Rs 6,000 of MTM debited per lot in a single day, on top of the margin you already locked. For sellers, MTM behaves like futures and demands the same discipline.

• Option buyers: daily MTM revalues the position, but loss is capped at premium paid, so no margin call beyond that premium.
• Option sellers: daily MTM can debit large amounts and you must maintain margin, so treat it like a futures position.
• Weekly expiry options can swing violently on expiry day, producing very large MTM moves in the final hours.
• Premium is also quoted in points, so multiply by the lot size of 65 on Nifty to get the rupee value.

Costs and Taxes That MTM Does Not Show You

Your daily MTM figure is a gross number. It does not include the costs that decide whether you actually keep the money. On the Nifty 200 point winning day worth Rs 13,000 per lot, you still pay brokerage, Securities Transaction Tax, exchange transaction charges, GST on those charges, SEBI turnover fees and stamp duty. STT on futures is charged on the sell side of the turnover, and STT on options is charged on the sell side premium, so both quietly reduce your net. On a single lot the all in cost is usually a few hundred rupees, which is small against Rs 13,000 but very large against a thin scalp.

Tax treatment is where many traders are caught off guard. Profit and loss from futures and options is treated as business income under Indian tax law, not as capital gains. That means the 20 percent short term capital gains rate and the 12.5 percent long term rate above Rs 1.25 lakh, which apply to delivery equity, do not apply to F&O. Your net F&O profit is added to your other income and taxed at your applicable slab rate. The flip side is that F&O losses can generally be set off and carried forward under business income rules, subject to the conditions in the law, including timely filing.

How the Daily MTM Cycle Works on the NSE

At the end of each trading day, the clearing corporation computes the settlement price for every futures contract, usually based on a weighted average of the closing window. Every open position is then marked against that settlement price. Profits are credited and losses are debited in cash through your broker, normally reflected by the next morning. The next day, your position is carried forward at that settlement price, and the cycle repeats until you square off or the contract expires.

On the final expiry day, index derivatives in India are cash settled against the settlement value, so there is no physical delivery of the index. Single stock futures and options, however, can lead to physical delivery obligations on expiry if held in the money, which is a separate risk that traders must plan for. Nifty has weekly expiries on the standard expiry day of the week and a monthly expiry, while many contracts now follow a structured weekly and monthly calendar, so always check the exact expiry of the series you are trading because the MTM swings are largest near expiry.

Practical MTM Habits for Indian F&O Traders

The traders who survive F&O are the ones who internalise that every point is multiplied by the lot size. They never look at a screen and think in points alone. They translate instantly into rupees, because that is what hits the account. They also keep a clear buffer above the minimum margin, knowing that one volatile session can deliver a five figure MTM debit per lot without warning.

• Convert every stop and target into rupees using the live lot size before placing the trade.
• Hold margin buffer well above the exchange minimum to absorb a bad day without a margin call.
• Watch overnight and pre open gaps closely, since they create the largest single day MTM moves.
• Treat near expiry positions with extra caution, as MTM volatility spikes in the last sessions.
• Log net MTM after all charges and taxes so your journal reflects real cash, not gross points.

Finally, separate the emotion from the mechanics. A red MTM at 3 pm is not a verdict on your strategy, it is one mark against one settlement price. But a red MTM that you cannot fund is a real problem, because it can force a square off. The discipline is simple to state and hard to live: size so that any single day's MTM, in rupees, is something your account can comfortably absorb. Get that right and MTM becomes a useful daily scorecard rather than a source of panic. The figures throughout this page are illustrative and not a promise of returns.

Sources and Further Reading

For authoritative rules, lot sizes, settlement methodology and current charges, refer to SEBI, NSE India and Zerodha Varsity. Always confirm the live lot size, STT rate and tax position on the official source and your broker contract note before you trade.

Sources and Further Reading

For authoritative data and further reading on this topic, refer to SEBI (Securities and Exchange Board of India), NSE India and Zerodha Varsity. Always confirm current rules, rates and contract specifications on the official source before you trade.