What Is Mark-to-Market?

Mark-to-market is the daily process by which every open futures position is revalued at that day’s settlement price, and the gain or loss is paid in cash. Money moves out of losing accounts and into winning accounts every trading day, through the clearing house, rather than waiting until the contract expires.

How it works

1. At the end of each trading session, the exchange publishes a settlement price for each contract.
2. The clearing house compares each position’s value at today’s settlement with yesterday’s settlement (or with the trade price, on the day the trade was opened).
3. The difference is variation margin. Losers pay it, winners receive it, usually before the next session.
4. Your broker credits or debits your account to match.

After each day, every open position is effectively reset to the latest settlement price. Losses cannot pile up quietly for weeks.

A worked example

All prices are illustrative. On Monday you buy one gold futures contract (100 troy ounces, COMEX) at $4,000.00 per ounce.

Day	Settlement price	Change from prior	Daily cash flow
Monday	$4,010.00	+$10.00 from your trade price	+$1,000
Tuesday	$3,990.00	-$20.00	-$2,000
Wednesday	$3,995.00	+$5.00	+$500

On Wednesday you sell at $3,995.00, the settlement price.

Total: +$1,000 - $2,000 + $500 = -$500

That matches the overall result: ($3,995.00 - $4,000.00) × 100 ounces = -$500. Mark-to-market does not change what you make or lose in total. It changes when the cash moves.

Why futures work this way

Daily settlement is how the clearing house keeps counterparty risk small. Because nobody can owe more than one day’s losses at a time, and margin is set to cover a large one-day move, a default rarely leaves a big hole. This is a core difference between exchange-traded futures and private forward contracts, covered in futures vs forwards.

What it means for you

• Losses hit your cash immediately. If a position moves against you, your account balance falls the same day.
• It can trigger margin calls. If daily losses push your balance below the maintenance level, you get a margin call and must add money or reduce the position.
• Timing matters even when you are right. A position that ends up profitable can still force you out first if interim losses drain your account.

Mark-to-market in tax

The same idea appears in US tax law. Under Section 1256 of the Internal Revenue Code, regulated futures held at year end are treated as sold at fair market value on the last business day of the year, so open gains and losses are taxed annually. See how futures are taxed in the US.

Related: How futures margin works · What Is a Margin Call? · How clearing houses work