What is mark-to-market?
Mark-to-market is a process of valuing an asset or contract based on its current market price. In perpetuals trading, it involves recalculating the profit or loss of a position by comparing the initial entry price with the current Mark Price. This adjustment provides you with real-time insights into the performance of your positions.
Mark-to-market is important in perpetuals trading as it allows you to accurately assess your positions' profitability and risk exposure. By regularly updating the valuation based on the prevailing Mark Price, you can make informed decisions regarding your open positions and adjust your strategies accordingly.
How does mark-to-market work?
The mark-to-market process involves comparing the initial entry price of a perpetual position with the contract’s current Mark Price to determine the profit or loss. If the Mark Price has increased since the position was opened, it results in an unrealized profit. Conversely, if the Mark Price has decreased, it leads to an unrealized loss.
A similar process occurs for unsettled profit and loss, except that instead of comparing the Mark Price to the entry price, we compare it to the Mark Price at the time of the last settlement (or to the entry price if the position was opened after that). Unsettled profit and loss also incorporates other values, explained in the unsettled profit and loss article.
For example, let's say you enter a long position in a perpetual contract at a price of $10,000. If the current Mark Price rises to $12,000, the mark-to-market calculation would show an unrealized profit of $2,000. However, if the Mark Price drops to $8,000, the mark-to-market calculation would indicate an unrealized loss of $2,000.
It is important to note that both unrealized and unsettled profits and losses are dynamic and fluctuate as the Mark Price changes. You can monitor your positions' profits and losses in real-time to make informed decisions about whether to close or adjust your positions based on market conditions.