Mark-to-market (MTM) is an accounting method that records the value of an asset according to its current market price.
MTM is used to price futures contracts, which is very important for investors who trade futures in margin accounts.
MTM pricing accurately reflects the true value of an asset. In Mark-to-Market accounting the asset values are determined according to market prices at the end of each day in order to arrive at the profit or loss status of the parties in a futures transaction.
Mark to market plays an extremely big impact in futures trading as it directly determines if one have made some money or has lost some money for the day.
In futures trading Mark-to-market is also known as daily settlement. In mark-to-market the profit or loss of the contract is realized at the end of each trading day. This mark-to-market prevents the accumulation of losses beyond the point of affordability by the losing party and helps the clearing house reduce its risk of guaranteeing the performance of every futures contract.
