Introduction of Marking to Market Euro FX Future

        Mark to market cash settlement of ups and downs in the market is variation called settlement variation. Mark to market settlement is used to the only product which relates to the future. Usually, there are two methods to calculate mark to the market amount. One is normal rounding and the other is special rounding. The future investment based on the results of mark to market settlement and the value of the future cash.

        Once you get involved in the future investment, you have to keep an eye on the future market rates to overcome the risk of loss. The value of future rates changes with two elements: changes in the spot rate and changes in the market forces. If the rate of currency increases for a certain period, future prices also increase, and more likely when rate decreases the prices will remain low and supplier may face the situation of loss (H.Hau, W., & Moore, 2002).

        In the money market, all transactions based on money and currency exchange so, there is always a risk of future ups and downs which may lead you to the top or at the bottom. To avoid that risk, there should be investment till a margin.

To calculate the performance bond, it is necessary to take into consideration the following information and explanation;

            Performance bond current valued at $1700, and the next three days prices are +1%, +2% and -2% respectively. Calculate the changes in performance bond from daily marking the market.

Assuming that the previous year price is $8 and the short position is at 5000 EURO.

The above calculations show that;

The t represents the time of period after which market changes.

Day 1: Previous year FV is $ 8 and the day first future prices are calculated as 1 % of $ 1700 = 17 and changes performance is ( 17 – 8) =  $ 9 and the estimated short position is 5000 EURO, which shows the gain of ( 5000 * 9) = $ 45000.

Day 2: Future price is +2% of the current price and changes performance is (34 – 17) = $17 and the gain is (17 * 5000) = $ 85000 and cumulative margin is $ 176700.

Day 3: the price is negative -2% of 1700, which show the negative value that may cause of loss but previous year profit margin could cover this loss and it ends with a cumulative profit of $ 306700. The further year prices may tend to fall but it depends upon the whole year market situation.                                        

            The marking to market method helps to determine the investor to decide either he should invest his money in long or short term plans, or should go for some spendings. In most cases, the contract is sold at the same maturity at zero. Whenever the contract sold at the same maturity, the net position is always zero (R.Portes & H., 1998).

References of Marking to Market Euro FX Future

H.Hau, W., K., & Moore, M. (2002). How has the euro changed the foreign exchange market?. Economic Policy, 17 (34), 149-192.

R.Portes, & H., R. (1998). The emergence of the euro as an international currency.