Image courtesy: (BloombergQuint)

BQLearning - F&O Series: What Is Mark To Market? 

BQLearning is a special show that seeks to demystify financial markets, economic theories, legal processes and political structures.

In this series we explain how the most commonly used derivatives - futures and options, work in equity markets, the advantages they offer and the risks associated with them.

To mark to market is to account for profit and loss incurred in holding a position in the futures contract on a periodic basis, in this case daily. The exchange collects mark-to-market margins from loss making participants and pays the gainers on day-to-day basis. The profit or loss is adjusted to the margin paid by participants to hold a position in the futures contract.

In this video, Amit Shah, technical and derivatives analyst at BOB Capital Markets explains how mark to market works, and its impact on initial margin.