Mark to market

An accounting and risk convention, applied continuously in margined trading. Rather than carrying a position at the price it was opened at, the firm revalues it against the current quotation, and the difference between the two is the unrealised profit and loss. That figure is what moves account equity while a position is open. The balance itself does not move until the position closes, at which point the running figure becomes realised and the balance moves once.

The price used is the one at which the position would close, not the one at which it was opened and not the mid. A long position is marked against the bid and a short position against the ask, so a position marks at a small loss the instant it opens, by the width of the spread, before the market has moved at all. That is the single most common surprise on a first trade, and it is arithmetic rather than a charge.

Marking also happens at a defined point each day for purposes other than the screen figure. The daily mark is what a clearing house uses to move variation margin between counterparties, and it is the reference for financing adjustments on positions carried overnight. Where no current market price exists, for an instrument that has stopped trading or never traded actively, a value has to be derived from a model instead, which is called marking to model and is a materially weaker measurement: the number is then an estimate produced by assumptions rather than a price anybody dealt at.