Investment word of the day: Mark to market is a financial metric that calculates the true value of a company’s assets and liabilities, which fluctuates over time. One of the major objectives of mark to market is to measure and evaluate the financial condition of a company based on existing market factors.
This approach gives the latest update of the financial worth of an asset, similar to checking the value of an investment portfolio at any point in time. Typically, mutual funds and stocks are marked to market daily. It is also used for futures trading.
Risks of mark to market
One of the major risks associated with mark to market is the volatility of the market. The consistent rise and fall in the market often make it difficult to determine the true value of an asset, posing an issue in estimating the change in its future value.
This metric also makes it challenging to buy or sell an asset during unusual market conditions, such as a pandemic or a financial crisis, as mark to market does not reflect the actual value.
Disclaimer: This article is for informational purposes only and does not constitute financial advice; please consult a qualified financial advisor before making any financial decisions.
