What is Mark to Market?

Mark to market is the recognition of certain types of securities at their period-end market values at the end of a reporting period. The mark to market process is used to give the readers of an organization's financial statements the most current view of the entity's asset and liability valuations. However, this process can give readers a pessimistic view of a firm's financial situation if there is a sudden downturn in asset values at month-end, from which market prices subsequently recover.

The amount recognized may be a gain or a loss when compared to the acquisition cost of the security. These are unrealized gains or losses if the assets in question continue to be held, or realized gains or losses if they are sold.

Mark to Market Applicability

The mark to market concept does not apply to all assets. For example, it is not applied to fixed assets, for which historical acquisition costs are presented. The concept is primarily applied to shorter-term assets, such as securities held for investment purposes.

Marking to Market in Margin Accounts

The mark to market concept is also used by brokerages to adjust the margin accounts of clients for daily profits and losses. Losses may trigger a margin call that requires clients to put more funds into their accounts.