Mark-to-Market.

Mark-to-market (MTM) is an accounting method that values assets and liabilities at their current fair market value rather than at historical cost or acquisition price. Under mark-to-market accounting, the balance sheet reflects what assets could be sold for today, and unrealized gains and losses flow through the income statement or through other comprehensive income, depending on the asset classification. Financial institutions, particularly banks, hedge funds, and derivatives dealers, rely heavily on mark-to-market valuations because their portfolios contain assets whose value fluctuates daily in liquid markets. The approach provides real-time transparency about the economic condition of a balance sheet, which is why regulators and investors in financial services prefer it over historical cost accounting for trading books. However, mark-to-market can amplify volatility: during a financial crisis when market prices collapse, MTM accounting forces institutions to recognize large paper losses that may reduce regulatory capital, triggering forced selling that further depresses prices in a self-reinforcing spiral. Critics of mark-to-market accounting argue that in illiquid or stressed markets, current prices reflect distressed selling rather than fundamental value, producing misleading financial statements. For individual investors in standard brokerage accounts, mark-to-market is experienced informally through daily portfolio valuation — the number displayed as "current value" is mark-to-market pricing. Futures traders face MTM as a formal daily settlement mechanism: gains and losses on open positions are calculated and credited or debited to margin accounts each trading day, regardless of whether positions have been closed.