Mark-to-market is the practice of valuing positions daily at current market prices to determine unrealized profits and losses. This process ensures that trading accounts accurately reflect current position values and helps manage risk by recognizing gains and losses immediately. Mark-to-market is mandatory for futures trading and common in other leveraged instruments.

Daily mark-to-market settlements require cash adjustments for unrealized losses, potentially triggering margin calls if account equity falls below required levels. This process helps prevent the accumulation of large losses and maintains market integrity. Understanding mark-to-market implications helps traders manage cash flow and margin requirements effectively.

Real-world example: A trader holding gold futures sees daily mark-to-market adjustments as gold prices fluctuate, with $1,000 debited from their account when gold falls $10 per ounce on their 10-contract position, requiring adequate account funding to maintain positions.