Mark To Market - MTM


DEFINITION of 'Mark To Market - MTM'

1. 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.

2. 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.

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


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BREAKING DOWN 'Mark To Market - MTM'

1. Problems can arise when the market-based measurement does not accurately reflect the underlying asset's true value. This can occur when a company is forced to calculate the selling price of these assets or liabilities during unfavorable or volatile times, such as a financial crisis. For example, if the liquidity is low or investors are fearful, the current selling price of a bank's assets could be much lower than the actual value. The result would be a lowered shareholders' equity.

This issue was seen during the financial crisis of 2008/09 where many securities held on banks' balance sheets could not be valued efficiently as the markets had disappeared from them. In April of 2009, however, the Financial Accounting Standards Board (FASB) voted on and approved new guidelines that would allow for the valuation to be based on a price that would be received in an orderly market rather than a forced liquidation, starting in the first quarter of 2009.

2. This is done most often in futures accounts to make sure that margin requirements are being met. If the current market value causes the margin account to fall below its required level, the trader will be faced with a margin call.

3. Mutual funds are marked to market on a daily basis at the market close so that investors have an idea of the fund's NAV.

  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  3. Mark-To-Market Losses

    A loss generated through an accounting entry rather than the ...
  4. Write-Down

    Reducing the book value of an asset because it is overvalued ...
  5. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  6. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
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  1. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  2. When is market to market accounting performed?

    Mark to market accounting is used for substantially all investments or financial instruments held on a corporation's balance ... Read Full Answer >>
  3. How is market to market (MTM) treated under Generally Accepted Accounting Principles ...

    Mark to market accounting became a part of generally accepted accounting principles, or GAAP, in 1993 when Statement of Financial ... Read Full Answer >>
  4. Where did market to market (MTM) accounting come from?

    Mark to market accounting has been around in concept since the stock market began; however, it was not officially part of ... Read Full Answer >>
  5. Why is market to market (MTM) accounting considered controversial?

    Mark to market accounting has been an integral component of generally accepted accounting principles (GAAP) in the United ... Read Full Answer >>
  6. What does it mean when a derivative is marked to market?

    When a derivative is marked to market, it means the derivative is valued and accounted based on its market value rather than ... Read Full Answer >>
  7. How is market to market accounting different than historical cost accounting?

    Historical cost accounting and mark-to-market, or fair value, accounting are two methods used to record the price or value ... Read Full Answer >>
  8. What do the S&P, Dow and Nasdaq futures contracts represent?

    Every morning before North American stock exchanges begin trading, TV programs and websites providing financial information ... Read Full Answer >>
  9. What is a mutual fund's NAV?

    Net asset value (NAV) represents a fund's per share market value. This is the price at which investors buy ("bid price") ... Read Full Answer >>

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