Reblog: Mark To Market Definition: Day Trading Terminology
Mark to market refers to an investment measure or accounting tool used to record an asset’s value to reflect the market value of the security rather than its book value.
The tool is commonly used on futures accounts and helps to ensure that all margin requirements have been completed. When it comes to mutual funds, mark to market refers to how a fund’s net asset value is calculated every day based on the underlying investment closing prices.
Why It’s Important
In security trading, when a portfolio or investment is marked to market, then its value is usually changed in order to reflect the current market price. Investors usually take advantage of this when they are holding a position through the end of the year. Instead of being forced to close it out to realize a loss or gain, you can simply to choose to mark to market the position which will establish the position at the market price for when you file your taxes.
Securities in a trader’s account are usually marked to market on a daily basis. This happens at the closing bell. As a result, prices marked on every asset become the price that buyers and sellers decide to be at the end of the trading session.
In futures contract, a long position will be debited while the short position will be credited. This is done to reflect the asset’s change in value.
Mark to market is an important tool when it comes to security trading and filing your taxes so make sure you understand how it works and if you qualify to have it on your account. As always, make sure to speak a certified tax specialist!
The original post is penned by Ross C, appears on warriortrading.com and is available here.