Understanding MTM in the Indian Share Market

When it comes to trading in the Indian share market, there are several terms and concepts that investors need to be familiar with. One such term is MTM, which stands for “Mark-to-Market”. MTM is an important aspect of trading and plays a significant role in determining the profitability of investments.

What is MTM?

MTM refers to the process of valuing positions in the share market at their current market prices. It is a method used to calculate the profit or loss on open positions daily. By marking positions to market, investors can accurately assess the financial health of their investments in real time.

MTM is particularly relevant for traders who engage in short-term trading or intraday trading. Since the prices of stocks can fluctuate throughout the trading day, MTM allows traders to keep track of their positions and make informed decisions based on the current market value.

How Does MTM Work?

MTM involves comparing the original purchase price of a security with its current market value. The difference between the two values determines the profit or loss of the position. If the market value is higher than the purchase price, the position is in profit, and if the market value is lower, the position is in loss.

For example, let’s say an investor purchases 100 shares of a company at Rs. 100 per share. At the end of the trading day, the market price of the shares is Rs. 110. In this case, the MTM profit would be Rs. 1,000 (100 shares * Rs. 10). Conversely, if the market price is Rs. 90, the MTM loss would be Rs. 1,000.

It is important to note that MTM is calculated daily, and the profits or losses are realized only when the positions are closed. Until then, the MTM values represent unrealized gains or losses.

MTM and Margin Trading

MTM is closely associated with margin trading, where traders can buy or sell securities by borrowing funds from their brokers. In margin trading, the positions are marked to market daily to determine the margin requirement.

When a position incurs a loss, the trader may be required to deposit additional funds to meet the margin requirement. Conversely, if a position generates a profit, the trader may be able to withdraw the excess margin. MTM helps in maintaining the required margin levels and ensures that traders have sufficient funds to cover their positions.

Benefits of MTM

MTM offers several benefits to investors in the Indian share market:

Real-time assessment: MTM allows investors to evaluate the performance of their investments daily, providing them with up-to-date information.
Risk management: By monitoring MTM values, investors can identify potential risks and take appropriate actions to manage their portfolios.
Intraday trading: MTM is especially useful for intraday traders who need to make quick decisions based on the current market value of their positions.
Margin trading: MTM ensures that traders maintain the necessary margin levels and have sufficient funds to cover their positions.

In conclusion, MTM plays a crucial role in the Indian share market by providing investors with a real-time assessment of their positions. By marking positions to market, investors can accurately calculate their profits or losses and make informed decisions. Whether you are a short-term trader or engaged in margin trading, understanding MTM is essential for successful trading in the Indian share market.