Mark-to-Market (MTM)
The practice of revaluing an asset or liability to its current market price at the end of each reporting period.
What is Mark-to-Market?
Mark-to-market (MTM), also called fair value accounting, is the practice of measuring and reporting the value of assets or liabilities at their current market price rather than their original purchase price. Under GAAP (ASC 820), financial instruments such as trading securities, derivatives, and certain investment portfolios must be marked to market each period, with unrealized gains and losses flowing through earnings or other comprehensive income depending on classification. Mark-to-market provides investors with timely, relevant valuations but can introduce significant earnings volatility — particularly for financial institutions holding large securities portfolios. During market downturns, falling market prices can trigger forced write-downs that may not reflect the long-term economic value of assets held to maturity.
Example
A hedge fund holds a portfolio of publicly traded equities originally purchased for $100 million. At quarter end, the market value of the portfolio is $112 million. The fund marks the portfolio to market, recording a $12 million unrealized gain. If the market falls the following quarter and the portfolio drops to $95 million, the fund records a $17 million unrealized loss — even though no securities have been sold. These mark-to-market adjustments directly affect the fund's reported net asset value (NAV) and performance metrics.