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Mark-to-market: Difference between revisions
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{{anat|isda|}}The [[market value]] is the value of an [[asset]] by reference to its [[market price]] — ie what folks are prepared to pay for it at the particular point in time, rather than by assessing the value of the fundamental components of the asset. The latter involves ineffable wisdom, technical analysis and cojones of steel — and at times of stress is apt to make an owner feel aggreived at the world; the former is a bit like sticking something on eBay — hence, “[[Mark to market|marking-to-market]]” — and yields an instant answer if not necessarily gratification. | {{anat|isda|}}The [[market value]] is the value of an [[asset]] by reference to its [[market price]] — ie what folks are prepared to pay for it at the particular point in time, rather than by assessing the value of the fundamental components of the asset. The latter involves ineffable wisdom, technical analysis and cojones of steel — and at times of stress is apt to make an owner feel aggreived at the world; the former is a bit like sticking something on eBay — hence, “[[Mark to market|marking-to-market]]” — and yields an instant answer if not necessarily gratification. | ||
Marking-to-market is a method of accounting to value an asset. In the absence of a better idea, it is to treat the value of something you have ''not'' sold as if you ''had'' sold it. Regular readers will not be surprised to hear that this can lead to confusion, disappointment and colossal regret. They may, however, be surprised to hear there have been many financial professionals — ones who, similarly, should not have be surprised to hear that — who, in fact, ''have'' been surprised to hear it, and have had the frights of their lives finding it out the hard way over the 30 years since mark-to-market accounting became ''de rigueur'' — | Marking-to-market is a method of accounting to value an asset. In the absence of a better idea, it is to treat the value of something you have ''not'' sold as if you ''had'' sold it. Regular readers will not be surprised to hear that this can lead to confusion, disappointment and colossal regret. They may, however, be surprised to hear there have been many financial professionals — ones who, similarly, should not have be surprised to hear that — who, in fact, ''have'' been surprised to hear it, and have had the frights of their lives finding it out the hard way over the 30 years since mark-to-market accounting became ''de rigueur'' — re-popularising itself in the hands of accounting wizards like [[Jeff Skilling]] and [[Andrew Fastow]] in the 1990s, Roosevelt having banned it, at the [[SEC|SEC’]]<nowiki/>s urging, as long ago as 1938. | ||
====How it works==== | ====How it works==== | ||
If a market bid is “[[firm bid|firm]]”<ref>Meaning the person making the bid is prepared to trade at that price.</ref> and the market [[liquid]]<ref>Meaning there are lots of people in the market for that asset at that time</ref> then however estimable your fundamental valuation techniques, you can’t argue about a [[market value]]. In financial markets one can do without a firm bid for your own asset if there is an public market for assets exactly like your one where one can see trading prices every day. Like the equities market, for example. | If a market bid is “[[firm bid|firm]]”<ref>Meaning the person making the bid is prepared to trade at that price.</ref> and the market [[liquid]]<ref>Meaning there are lots of people in the market for that asset at that time</ref> then however estimable your fundamental valuation techniques, you can’t argue about a [[market value]]. In financial markets one can do without a firm bid for your own asset if there is an public market for assets exactly like your one where one can see trading prices every day. Like the equities market, for example. | ||