Futures are traded on the basis on SPAN. That’s what makes it a higly leveraged contract and attracts more participation than equity. However the risk involved is equal for buyers and sellers. Hence an initial margin (SPAN) is collected by the exchange from both parties (i.e. buyer & seller). Then a MTM (Marking to the market) is done on daily basis where the loss is collected from one party and given to ther other who has gained. This ensures that the risk is even for both parties on a daily basis and ensures that the clearing members can manage risk efficiently and avoid defaults.
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Daily Mark to Market is done to avoid partiality between buyer and seller, one person incurring loss and another is gaining. So margin from loss person is taken and given to gaining person, in simple term.
MTM reflects and captures the risk associated with Futures.
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