Marked to market

Revalued at the current market price, with a futures position's gain or loss settled in cash each day. Credit exposure then never grows beyond a single day's move.

Where you will meet it

Marked to market appears in 4 learning outcomes on the CFA syllabus. A few of them:

• Explain what forwards, futures and swaps are
  CFA Level I · Derivatives

  “Futures are the exchange-traded, standardised version: a clearing house stands between the parties and positions are marked to market daily, which largely removes credit risk.”

• Explain the pricing of fixed-income forwards and futures, and work out their no-arbitrage value and say what it means
  CFA Level II · Derivatives and Risk Management

  “A bond forward is worth the present value of the new less the original forward price; a futures position is marked to market daily and is worth zero after each settlement.”

• Contrast futures with forwards on cash flows and counterparty credit risk
  CFA Level I · Derivatives

  “A future is marked to market daily through an exchange: the same economic exposure is delivered, but the profit or loss is settled in cash every day and credit exposure never accumulates beyond one day's move.”

• Say why forward and futures prices may not be equal
  CFA Level I · Derivatives

  “The difference comes from daily marking to market.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with M · Glossary