To mark to market consists of valuing a position at the settlement price, which is normally different from that which it had at the moment of purchase or sale of the asset. In the options and futures markets this operation is carried out daily to adjust all the positions, with the objective of reflecting the closing price established by the day’s prices.
This settlement price is necessary to determine whether profits or losses have been produced in the contracts during a certain period of time as well as to determine the needs with respect to the margin.
In this sense, the margin is the deposit that the operator of the futures and options market must make to cover the risk of nonfulfillment of a contract. The amount of this deposit varies from day to day, with the variation of the operator’s position.
The determination of the latter is when the settlement price intervenes, given that the variations in the value of each position are added to or subtracted from the margin at the end of each day, when all the current positions of each operator are marked to market.
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