What Is Mark-to-Market in Futures?

Daily settlement, and what it does to your cash.

When you trade a futures contract, you do not wait until expiration to find out whether you made money. The exchange settles your position every single day — gains flow into your margin account overnight, losses flow out. That process is mark to market futures accounting, and it is what makes futures fundamentally different from the forward contracts they resemble on paper. Use the futures pricing calculator to confirm current settlement prices; this article explains exactly what happens to your cash once they are posted.

What mark to market means in practice

At the end of each trading session, the clearinghouse publishes a daily settlement price for every listed contract. Your open position is then revalued at that price. If the settlement price moved in your favour, the difference is credited to your margin account in cash. If it moved against you, the difference is debited. This daily cash transfer is called variation margin.

Three things follow from this structure:

• Your unrealised P&L is zero at the start of every new day — it has already been realised and settled.
• Your margin account balance fluctuates continuously as settlement prices move.
• The total gain or loss over the life of the trade equals the sum of all daily variation margin flows, which nets to the same number you would have calculated from entry price to exit price.

This is not accounting sleight of hand. The cash is real and moves the same day settlement prices are posted, typically overnight.

A worked example: three days in a corn futures position

Suppose you buy one CBOT corn futures contract at 450 cents per bushel. Each contract covers 5,000 bushels, so a one-cent move is worth $50. Initial margin is $1,350; the maintenance margin threshold is $1,000. Your broker requires you to top the account back up to initial margin if the balance falls below maintenance — that top-up is the margin call. Full details on how those thresholds are set are in the margin requirements guide; here we track just the cash.

Day	Settlement price (¢/bu)	Daily move (¢/bu)	Variation margin ($)	Margin balance ($)
Entry	450.00	—	—	1,350.00
1	453.00	+3.00	+150.00	1,500.00
2	447.50	−5.50	−275.00	1,225.00
3	444.00	−3.50	−175.00	1,050.00

After day 3 the balance is $1,050 — above the $1,000 maintenance threshold, so no margin call. But another adverse move of just 1 cent ($50) would breach that floor. If settlement on day 4 landed at 441.00 cents, the $150 debit would drop the balance to $900, triggering a margin call to restore it to $1,350. The cumulative loss through day 3 is $300 — exactly (450 − 444) × $50 — confirming that daily settlement and lump-sum settlement produce identical total P&L.

How this compares to a forward contract

A forward contract is economically similar — you agree today on a price for future delivery — but it settles only once, at maturity. No cash changes hands during the life of the trade. That single difference has several practical consequences:

• Counterparty risk. Because a forward does not mark to market, the full unrealised loss accumulates until expiry. If your counterparty defaults, you are exposed for the entire amount. A futures clearinghouse, by contrast, collects variation margin daily, so at any given moment the maximum exposure is roughly one day's price move.
• Liquidity demands. Futures can generate daily cash calls even when your long-run view is correct. A forward requires no cash until delivery — useful for hedgers who lack day-to-day liquidity.
• Credit intermediation. Futures clearinghouses sit between every buyer and seller, guaranteeing performance. Forwards are bilateral; creditworthiness of the specific counterparty matters.

The mark-to-market mechanism is, at its core, a credit-risk management tool. The exchange effectively resets the contract to zero every day, so no single party can accumulate a catastrophic unpaid loss.

The financing difference: futures versus forwards

There is a subtler consequence of daily settlement that affects valuation. Because variation margin flows in cash each day, the effective rate at which you finance or invest those flows is the overnight rate, not the fixed rate locked in at trade inception. In a world where interest rates are correlated with the underlying asset's price, this daily financing path differs from the single terminal settlement of a forward — and the two instruments should not have exactly the same price.

The adjustment is usually small, but it is real. When rates and asset prices are positively correlated — as with interest-rate futures themselves — the long side of a futures contract receives variation margin gains precisely when rates are high (good reinvestment rate) and pays variation margin losses when rates are low (low financing cost). That asymmetry makes the futures slightly more valuable than the comparable forward, and the fair futures price sits fractionally above the forward price. For equity index futures, where the correlation is weaker and often negative, the adjustment runs the other direction. The relationship is worked through fully in the fair value explainer.

Margin calls and position management

The margin call is where mark-to-market accounting becomes operational rather than theoretical. When a string of adverse settlement prices erodes the margin balance below the maintenance level, the broker issues a call for additional funds — typically due before the next trading session opens. Failing to meet it results in forced liquidation of the position, usually at the open of the following day.

A few practical points that follow:

• Margin calls are triggered by settlement prices, not intraday prices. A position can trade well below maintenance during the session and recover before the close without generating a call.
• The call amount restores the balance to initial margin, not merely to maintenance — a common source of confusion for new traders who expect to top up only the deficit.
• Holding excess margin above the initial requirement provides a buffer against consecutive adverse days without requiring constant wire transfers.

Mark to market is ultimately the mechanism that keeps the futures market honest. By forcing losses to be paid immediately rather than deferred, it ensures that every open position is continuously creditworthy — and that the price you see on screen reflects what the position is actually worth today, not what someone hoped it would be worth at expiry.