Zerodha MTM F&O

Mark-to-Market (MTM) explained

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Mark-to-Market (MTM) is the daily revaluation and cash settlement of F&O positions to the current price. At end of each trading day, all open F&O positions are revalued; gains credit / losses debit to the user’s account.

How MTM works

For an open NRML F&O position:

  • Day 0 (open): Open at price P0.
  • Day 0 close: Settlement price S0; MTM = (S0 - P0) x lot size.
  • Day 1 close: Settlement price S1; MTM = (S1 - S0) x lot size.
  • Day 2 close: Settlement price S2; MTM = (S2 - S1) x lot size.
  • …
  • Day N (close position): Realised P&L = sum of daily MTMs.

The cumulative P&L over the position’s life = sum of daily MTM credits / debits.

Effect on margin

Each day’s MTM affects margin used:

  • MTM gain: credits cash; reduces effective margin needed.
  • MTM loss: debits cash; increases pressure on margin.

For F&O traders, daily MTM is a continuous cash flow.

Daily settlement price

The MTM uses the daily settlement price, not the closing LTP:

  • Typically the volume-weighted average over the last 30 minutes of trading.
  • Computed by NSE Clearing.
  • Same for all market participants.

The settlement price can differ from the last LTP by a few paise to several rupees.

Cash settlement (index F&O)

For index F&O (Nifty, BankNifty, etc.):

  • Daily MTM settled in cash.
  • No underlying delivery.
  • At expiry, final settlement at the index closing value.

Physical settlement (stock F&O)

For stock F&O:

  • Daily MTM in cash (during the contract life).
  • At expiry: physical settlement of the underlying.
  • Pre-expiry physical-settlement margin layer applies.

MTM vs unrealised P&L

AspectMTMUnrealised P&L
Cash effectYes (daily)No (until close)
Settled byExchange clearingn/a
Used in marginYesReal-time
End-of-dayLocked inContinues

Effect on margin shortfall

MTM-driven cash movement affects margin shortfall risk:

  • Adverse MTM reduces cash; may trigger shortfall.
  • Favourable MTM cushions against future shortfall.

For risk management, monitor MTM trend through the session.

See also

External references

References

  1. NSE Clearing, Daily MTM methodology, nseclearing.com.
  2. SEBI, F&O settlement framework, sebi.gov.in.
  3. Zerodha, MTM and settlement, zerodha.com.

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