Mark-to-market is a valuation method aimed at providing a measurement based on current market conditions. Because mark-to-market is based on current market values, it gives a realistic picture of a company’s financial position.
Originally introduced to assess the value of futures contracts, mark-to-market accounting has become prominently used in over-the-counter derivatives markets, including forward markets, where it is one of the main tools to calculate FX gains and losses.
Mark-to-market has received criticism because in volatile times, it can provide results that do not accurately portray the true value of an asset or liability. If, for example, investor confidence in a certain market suddenly dissipates, leading to forced liquidations in the short-term, values could fall sharply, while not reflecting long-term valuation considerations.