If you want to get information about the Mark to Market Definition as well as Calculation, then here I am telling you about it, as you want.


Mark To Market - MTM
DEFINITION of 'Mark To Market - MTM'
A measure of the fair value of accounts that can change over time, such as assets and liabilities
Mark to market aims to provide a realistic appraisal of an institution's or company's current financial situation.

The accounting act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.

When the net asset value of a mutual fund is valued based on the most current market valuation.



How it works (Example):

For example, the stocks you hold in your brokerage account are marked-to-market every day.

At the closing bell, the price assigned to each of your stocks is the price that the larger market of buyers and sellers decided it would be at the end of the day.

No other pricing information is included.

Mark to market is similarly used to price futures contracts, which is very important for investors who trade commodities with margin accounts.

Why it Matters:
Most agree that Mark to market pricing accurately reflects the true value of an asset.

However, Mark to market can be problematic in times of uncertainty because the value of assets can vary wildly from second to second - not because of changes in the underlying value of assets, but because buyers and sellers are surging in and out in unpredictable ways.

It is important not to confuse mark-to-market with mark-to-management or mark-to-model.

Calculation of Mark-to-Market Valuation
For some assets, determining the current market value is very simple.

Airline companies often purchase crude oil future contracts to hedge their risk of increasing oil prices.

The price of those contracts fluctuate daily in the commodities market, but because the commodities market is such an active market, the most recent value of a contract is just a few clicks away.

Other assets are not so easy to value using mark-to-market, as not all assets trade on an active exchange.

Good examples include account receivable portfolios and loans.

In those situations, financial analysts are responsible for estimating the market value using the information they do have and a fair and logical formula.

These formulas should provide the best possible answer to the question:
If this asset were sold today, at what price would the transaction occur?