Hello Friends I am CYPER and today I am going to explain what is MTM in PCEX Futures.
You have heard a lot of times, what is the position of MTM, what does that mean?
The term MTM or Marking to Market is fairly self-explanatory.
MTM is measuring the value of your assets according to the current market conditions.
Let’s explain this concept with an example.
Suppose you have bought a BTC/C2USD Futures contract lot size of 5 at Rs. 500 expiring on 14th January and you have carried it till 17th January and then sell it at Rs 550. By doing this, you have made a profit of Rs. (550-500) = Rs. 50.
As the BTC/C2USD contract is a lot size of 5 so you have made a total profit of 50 x 5= Rs. 250
Isn’t it simple?
But, in MTM we talk about the daily cash adjustment. One of the major benefits of MTM is that it removes the counterparty default risk. On PCEX Member, the settlement is done on an MTM basis.
From the above example, it is easy to understand that you have bought a BTC/C2USD futures contract at Rs. 500 and sold it at Rs. 550 and made a profit of Rs. 250.
But, what happened in these 3 days. This is important to understand because if the margin shortfall will occur in between then, the exchange or broker can square off your position and you have to bear the loss.
Let’s take the above trade as an example to understand the concept of MTM in detail.
You have bought a BTC/C2USD futures contract on 14th January at Rs. 500. For this, the Reference price for MTM is Rs. 500. On the market closing, the price of the futures contract goes up to Rs. 510. As the lot size is of 5 so the profit of your day which you can see in Daily MTM is Rs. 50 which you can see in positions under orders table on PCEX Member.
On the next day, the closing price of the previous day will be considered as the Reference price of MTM i.e. Rs. 510. At the closing of the market on 15th January the price of the BTC/C2USD fell to Rs. 490 then you have made a loss of Rs. 100 which will be highlighted with a minus sign in positions under the orders table on PCEX Member.
Similarly, on the third day, the market opens at Rs. 490 and at the market closing price goes up to Rs. 530 and thereby you make a profit of Rs. 200 consecutively you make a profit of Rs. 100 on the 4th day and thereby makes a total profit of Rs. 250 at the end.
The profit and loss that happens when you hold a position is known as an unrealized profit/loss and the profit/loss that you are into after selling the position is referred to as realized profit/loss.
Now you understand what is MTM and RMTM and how is it calculated.