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What is MTM in Share Market? Meaning, Full Form and its Importance

Are you wondering what is MTM in Share market? If yes, then this blog post is for you. Here in this article, I have discussed the meaning, full form, importance, advantages and disadvantages of MTM with examples. So let's start.

What is MTM in Share Market?

MTM stands for Mark to Market. In the Share market, it is a financial term that has been used to refer to the price of securities.

The value of stock in the share market fluctuates with its MTM. So this implies that when prices are going up and down according to demand and supply then it's called mark-to-market.

MTM represents the current worth of a security. Mark to market or MTM refers to the process of valuing assets (stocks) at their current worth instead of historic cost.

It is very important for traders as they trade daily based on this price.  So when you think about it then this process helps you to buy and sell shares at their current value so that you can earn profit.

How MTM is calculated?

MTM is calculated by the price of a share in the market. So let's take an example to understand it better.

Suppose you have bought shares worth Rs 1000 from ABC Ltd and now its MTM/market value is Rs 1050 then your profit will be Rs 50 as this is the same as percentage gain i.e., (Rs 1050 - 1000) /1000 * 100 = 5%.

But this is not an easy task to determine the current worth of shares as the value changes every second. So you cannot make investment decisions on a daily basis based on its MTM/market price.

This process will give you a clear idea about how much your security's trading values have changed over time if it has fluctuated widely, as MTM is the current worth of a security.

What is MTM profit or loss in the Share market?

The MTM profit or loss is calculated by taking into account the price of securities bought and sold in an investment portfolio. This process is done at regular intervals, say every month or quarter.

So if you have purchased shares worth Rs 1000 two months ago but now its MTM/Mark-to-Market value has risen to Rs 1050 then you will earn a profit of Rs 50 i.e., (Rs 1050 - Rs 1000) /1000 * 100 = Rs 5% (Profit).

On the other hand, if you have sold shares worth of Rs 1000 two months ago but its MTM/Mark-to-Market value has gone down to say 800 then you will incur a loss of Rs 200 i.e., (Rs 800 - Rs 1000) /1000 * 100= Rs -20% (Loss).

What is MTM in Upstox?

MTM in Upstox is the same in meaning as MTM in Share market. To understand more about it, you can visit the Upstox website and learn how to trade in share market using MTM in Upstox.

What is MTM in Options?

This is an important concept in options trading that helps you to determine the current price of your option contract at regular intervals, say every week or month depending on when it expires.

So let's take an example again where I have bought a call option with strike price Rs 1000, with an expiry of the current month in ABC Ltd shares which are currently trading at Rs 800.

Now suppose at the end of the current month the share price rises to 1100 so in this case, the MTM of my options contracts will also increase and my profit will be the difference between my buying and selling price of options contracts.

As you can see here when the market price of a security rises above the purchase price, MTM shows you your profit. Similarly, if the market value goes below this then it will show your loss.

So in case here I have bought call options for Rs 80 and sold them at Rs 100 so my net gain is Rs 20 per contract.

Advantages and disadvantages of MTM in share market

MTM valuation is being used widely in share trading as it provides an easy way to determine how much potential gains are left with you when the value of your security fluctuates.

Following are some major advantages and disadvantages of MTM in Share market

Advantages of MTM in Share market

  • It minimizes overhead for the exchanges.

  • A trader's profits and losses are recorded on a daily basis. Thus a trader can buy or sell a security at any time as he knows its MTM.

  • A trader can also review the performance of his own investments and those of others in order to make better decisions.

  • It is the most transparent method of trade settlement, which also ensures safety and security- all executed automatically by computers.

  • It helps in understanding the value and liquidity of a security over time, which is not possible by considering only prices on an everyday basis.

  • It also ensures that all deals are settled and there are no outstanding obligations on trading platforms.

Disadvantages of MTM in Share market

  • Volatility poses a serious problem for MTM. When the market is volatile, buyers will be more inclined to sell than hold their positions, as they will lose money if the value of their positions falls.

  • Traders must monitor the market on a regular basis to ensure that they maintain the required balance in the event of losses.

  • During market volatility, brokerage firms must work harder than usual to maintain the required margins.

  • MTM is a very technical and complex concept that requires expertise to understand.

Conclusions

As you can see, MTM is one of the most important metrics that investors consider when they are looking at potential trades.

It's not something to take lightly and it should be considered before making any moves in the share market, but if you do your homework first, it could give you an edge over other traders who don't know about this metric.

Do you consider MTM in Share market? Let me know by commenting below!

FAQs

MTM meaning in Share Market?

MTM stands for Mark-to-Market and is a way to record the value of your position at regular intervals. It calculates your potential gains and losses from securities over time.

MTM in Share market in Hindi?

एमटीएम का मतलब है मार्क-टू-मार्केट, यह नियमित अंतराल पर आपकी स्थिति के मूल्य को रिकॉर्ड करने का एक तरीका है। यह समय के साथ प्रतिभूतियों से आपके संभावित लाभ और हानि की गणना करता है।

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