What does marking-to-market refer to in financial trading?

Marking-to-market refers to assigning a value to financial instruments based on the current market price. This practice is crucial in trading as it ensures that the financial statements and reports reflect the most accurate and up-to-date valuations of assets and liabilities. By valuing investments in real-time, traders and investors can make informed decisions regarding their portfolios, responding to market fluctuations and trends.

In contrast to predetermined pricing or historical performance assessment, marking-to-market allows participants in financial markets to assess their positions based on actual market conditions. This process can lead to gains or losses being realized immediately as market prices fluctuate, providing a more dynamic view of one's financial status compared to other valuation methods.