Mark-to-market accounting updates an asset or liability's recorded value using current market information rather than leaving it at its original transaction price. In a trading ledger, this lets open positions contribute to profit and loss before they are closed. A strategy can lose economic value while reporting no realised trading loss if it keeps its losing positions open.
“Mark” means the valuation assigned at a specified time under a stated policy. For a liquid share, that policy might use a closing price or a bid–ask midpoint. Less liquid instruments may require a valuation model and current market inputs. The marked value is a measurement; it is not itself a trade or a cash receipt.
The gain arrives in the valuation first
Start with USD 1,000 cash and buy 10 shares at USD 50 each. Later, mark each share at USD 55, while continuing to hold all ten. Assume no fees, dividends, interest or external deposits and withdrawals.
| State | Cash, USD | Share value, USD | Equity, USD | Unrealised gain, USD |
|---|---|---|---|---|
| After the purchase | 500 | 500 | 1,000 | 0 |
| After the later mark | 500 | 550 | 1,050 | 50 |
For this cash-funded account with no liabilities, equity is cash plus the current value of its shares:
Here is cash, shares held, and the mark in USD per share. The purchase replaces USD 500 of cash with USD 500 of shares; it creates no gain. The later revaluation gives
Cash remains USD 500. The extra USD 50 is unrealised P&L: an increase in the marked value of shares still held.
Original synthetic USD ledger. The full sale is a separate hypothetical event, assumed executed at the mark with cash received. No fees, dividends, interest or external flows; actual execution need not achieve the valuation mark.
If the ten shares are subsequently sold at USD 55 and the proceeds received, cash becomes USD 1,050 and the share holding becomes zero. The USD 50 gain is then realised relative to the original purchase cost. Equity stays USD 1,050: do not add the realised gain again to a wealth measure that already included the marked gain. This economic use of “realised” describes an actual sale, separately from any reporting rule that recognises a gain earlier.
A mark needs a policy and an executable-price check
A USD 55 mark does not guarantee USD 550 of liquidation proceeds. The bid–ask spread, limited depth, fees and price changes before execution can all create a gap. A stale closing quote can also make a perfectly reconciled ledger economically misleading.
For a backtest, specify the price source, timestamp, treatment of missing or stale quotes, and whether the final position remains marked or is actually liquidated in the simulation. Revalue the quantity actually held, including required corporate-action adjustments. Record fills, cash flows and valuation changes separately so the equity curve can be reconciled.
The Positions, Trades, Fills and P&L lesson derives this ledger with execution prices, fees and partial fills, including why marking differs from liquidation. The full lesson requires membership; a public preview is available.
One important instrument distinction: for CME-cleared futures, daily settlement variation does move cash while positions remain open. CME describes this cash mark-to-market mechanism. The share example's unchanged-cash result must not be transferred to such a futures settlement ledger.
Portfolio marking is not a universal reporting mandate
A research ledger's valuation convention does not by itself determine financial-statement or tax treatment. Under IFRS, IFRS 13 provides a fair-value measurement framework when another standard requires or permits its use, subject to scope exceptions. Its exit-price concept concerns an orderly transaction between market participants at the measurement date. That does not mean every asset must be revalued through profit and loss, or that a forced sale will produce the reported value.
Tax rules form a separate system. For example, the US IRS guidance for individual securities traders distinguishes qualifying traders who make a valid section 475(f) election from investors, who cannot make that election. An economic mark in a portfolio report therefore does not automatically establish taxable income. The applicable jurisdiction, instrument, taxpayer status and reporting framework must be identified before assigning a formal treatment.
Sources
- Hull, John C. Options, Futures, and Other Derivatives, 9th Global Edition, Pearson, 2018: glossary p. 853; daily valuation discussion p. 232; futures daily settlement, section 2.4, pp. 51–52.
- IFRS Foundation — IFRS 13 Fair Value Measurement: measurement scope and the orderly-transaction exit-price definition.
- CME Group — Money Calculations for Futures and Options: futures settlement variation banked in cash.
- US Internal Revenue Service — Topic 429: US investor/trader distinctions and the section 475(f) election; checked 26 October 2026.