marktomarket

Mark-to-market is an accounting and financial valuation method that estimates the current value of an asset or liability using prevailing market prices or a deemed fair value. Unlike historical cost accounting, mark-to-market updates reflect changes in market conditions, and may be recorded through earnings or other comprehensive income depending on the category of the instrument and the applicable accounting framework. In practice, mark-to-market is widely used for trading portfolios, derivatives, commodities, and other financial instruments whose values fluctuate with market prices.

In accounting, assets such as trading securities or derivatives are often measured at fair value with changes recognized in earnings (mark-to-market). Under many frameworks, fair value measurements rely on observable market prices, recent transactions, or pricing models in the absence of active markets (level 1-3 inputs). For futures contracts and other exchange-traded instruments, mark-to-market refers to the daily settlement of gains and losses, with margin calls or credits adjusted to reflect the day's price movement.

Mark-to-market serves to reflect current credit exposure and market risk, enabling timely risk management and capital adequacy. It can influence reported earnings, reported equity, and regulatory capital, and it interacts with margin requirements in cleared markets.

Critics argue that mark-to-market can introduce volatility into financial statements, especially in stressed markets, and may amplify systemic risk if prices swing rapidly. Proponents contend that it provides transparent and timely information about an institution's financial position and reduces the mispricing of assets.

See also: fair value accounting, fair value measurement, variation margin, margin call.