EOD Mark-to-Market (MTM) Settlement Explained

How does the End of Day (EOD) Mark-to-Market (MTM) settlement process work in futures trading?

End of Day (EOD) Mark-to-Market (MTM) settlement is a vital concept in the world of futures trading. It's a daily cash settlement mechanism that ensures transparency and timely reflection of profits and losses in a trader's account.

How EOD MTM settlement works:

  1. Daily Settlement: Every day, open futures derivative positions must be settled in cash.
  2. Closing Price Determination: The settlement uses the exchange-provided closing price for all open futures contracts.
  3. Difference Calculation: The difference between the day's opening price and its closing price is settled in cash. For transactions conducted within the day, the opening price is considered the acquisition price.
  4. Cash Adjustments:
    1. Profit Scenario: When there's a profit, the difference (profit amount) is credited to the trader's account.
    2. Loss Scenario: Conversely, in the event of a loss, the difference is debited from the account.
  5. Roll Over for Next Day: The previous trading day's closing price becomes the next day's opening price, and the MTM process starts afresh at the end of the trading day.
It's essential for traders to be familiar with the EOD MTM settlement process. It not only affects your daily cash balance but also ensures you're aware of your position and potential risks.

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