Explain why the market insists on daily settlement

Expert Solution

Why market insists on daily settlement

In future trading daily settlemet takes place which we also call mark to market which is when asset values are determined by market at the end of each day in order to arrive at the profit or loss status of the parties in a futures transaction.

So in a nutshell its a procedure conducted by the clearinghouse daily which determines the value for the asset covered by the futures contracts, known as the settlement price and then convert the paper gains and losses to actual gains and losses in the accounts of the parties involved.

So market insists on daily settlement as so that lossese should not get accumlated which ultimatly may create a problem in fulfillment of obligations contracts,daily settlement is like two betters settling their daily wins or losses amongst themselves before they could move forward for a new bet the next day on the same terms so in this losses can not get accumlated hence market insists on daily settlement.

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