WHAT IT IS:

Mark-to-market (MTM) is an accounting method that records the value of

an asset according to its current market price.

HOW IT WORKS (EXAMPLE):

For example, the stocks you hold in your brokerage account are marked-to-
market every day. At the closing bell, the price assigned to each of your stocks is the
price that the larger market of buyers and sellers decided it would be at the end of the
day. No other pricing information is included.

MTM is similarly used to price futures contracts, which is very important for investors
who trade commodities with margin accounts.

WHY IT MATTERS:
Most agree that MTM pricing accurately reflects the true value of an asset. However,
MTM can be problematic in times of uncertainty because the value of assets can vary
wildly from second to second -- not because of changes in the underlying value of
assets, but because buyers and sellers are surging in and out in unpredictable ways. It
is important not to confuse mark-to-market with mark-to-management or mark-to-model.

What is the Mark-to-Market calculation method and how does it work?

Overview:

Mark-to-market (MTM) is a method of valuing positions and determining profit and loss which is used
by IB for TWS and statement reporting purposes. Under MTM, positions are valued in the Market Value
section of the TWS Account Window based upon the price which they would currently realize in the
open market. Positions are also valued using the MTM method for statement purposes and it is one of
the methods by which profit or loss is computed. Other methods available include First In, First Out
(FIFO), Last In, First Out (LIFO), and Maximum Loss.

MTM P&L shows how much profit or loss was made over the statement period, regardless of
whether positions are open or closed and with no requirement that closing transactions be
matched to an opening transaction. The MTM methodology rather assumes that all open
positions and transactions are settled at the end of each day and new positions are opened the
next day. For purposes of simplification, MTM calculations are split into two calculations: 1)
calculations for transactions which took place during the statement period, referred to as
Transaction MTM on the statement; and 2) calculations for positions which were open prior to
the start of the period, referred to as Prior Period MTM on the statement.

Background:

For example, assume 100 shares of hypothetical stock XYZ are purchased at $50.00 on Day 1;
another 200 shares are purchased on Day 2 at $52.00; 200 shares are sold on Day 3 at $53.00 and
another 100 on Day 4 at $53.50. Also assume that the closing prices for XYZ on Days 1, 2, 3
and 4 are $50.50, $51.50, $54.00 and $54.00, respectively. The MTM statement calculations for
each day are as follows:

Day 1

Transaction MTM - $50.00 ((50.50 50.00) * 100 )

Prior Period MTM - $0.00

Total MTM - $50.00

Day 2

Transaction MTM - ($100.00) ((51.50 52.00) * 200 )

Prior Period MTM - $100.00 ((51.50 50.50) * 100 )

Total MTM - $0.00

Day 3

Transaction MTM - ($200.00) ((54.00 53.00) * -200 )

Prior Period MTM - $750.00 ((54.00 51.50) * 300 )

Total MTM - $550.00

Day 4

Transaction MTM - ($50.00) ((53.50 54.00) * 100 )

Prior Period MTM - $0.00 ((54.00 54.00) * 100 )

Total MTM - ($50.00)

Total - $550.00
IMPORTANT NOTICE

Account holders should note that profit and loss calculations are calculated for statement
reporting purposes solely and should consult with their tax advisor regarding their obligations
with respect to reporting gains and losses for tax reporting purposes.

___________________________________________________________________________________

Buy Sell Change Value *

Volume OI No. of
Contracts Spread LTP ( in
QTY Price Price QTY Price % (in Lots) (in Lots) Trades
Crores)
USDINR
USDINR - -
106 67.1200 67.1225 37 0.0025 67.1225 40,741 2,13,059 273.50 1,330
240217 0.2450 0.36
USDINR - -
12 67.4025 67.4050 1 0.0025 67.3950 2,334 36,645 15.74 151
290317 0.2575 0.38
USDINR
55 67.3775 68.0400 55 0.6625 - - - - 1,245 - -
260417
USDINR
55 67.5750 68.3300 55 0.7550 - - - - 15 - -
290517
USDINR
100 67.7975 69.1025 100 1.3050 - - - - 500 - -
280617
USDINR
100 67.3225 69.2450 100 1.9225 - - - - 0 - -
270717
USDINR
55 67.5150 71.8775 55 4.3625 - - - - 0 - -
290817
USDINR
55 67.9325 70.9400 40 3.0075 - - - - 0 - -
270917
USDINR
- - - - - - - - - 0 - -
271017
USDINR
- - - - - - - - - 0 - -
281117
USDINR
- - - - - - - - - 0 - -
271217
USDINR
- - - - - - - - - 0 - -
290118

JPYINR
JPYINR 240217 5 59.8475 59.8650 10 0.0175 -0.1275 -0.21 59.8925 20 2,382 0.12 6
JPYINR 290317 5 60.1200 60.1700 5 0.0500 - - - - 4 - -
JPYINR 260417 - - - - - - - - - 0 - -
JPYINR 290517 - - - - - - - - - 0 - -
 JPYINR 280617 - - - - - - - - - 0 - -
JPYINR 270717 - - - - - - - - - 0 - -
JPYINR 290817 - - - - - - - - - 0 - -
JPYINR 270917 - - - - - - - - - 0 - -
JPYINR 271017 - - - - - - - - - 0 - -
JPYINR 281117 - - - - - - - - - 0 - -
JPYINR 271217 - - - - - - - - - 0 - -
JPYINR 290118 - - - - - - - - - 0 - -

EURINR
EURINR 240217 1 71.7550 71.7725 21 0.0175 -0.0475 -0.07 71.7700 340 1,733 2.44 54
EURINR 290317 5 72.0800 72.1275 5 0.0475 - - - - 15 - -
EURINR 260417 - - - - - - - - - 0 - -
EURINR 290517 - - - - - - - - - 0 - -
EURINR 280617 - - - - - - - - - 0 - -
EURINR 270717 - - - - - - - - - 0 - -
EURINR 290817 - - - - - - - - - 0 - -
EURINR 270917 - - - - - - - - - 0 - -
EURINR 271017 - - - - - - - - - 0 - -
EURINR 281117 - - - - - - - - - 0 - -
EURINR 271217 - - - - - - - - - 0 - -
EURINR 290118 - - - - - - - - - 0 - -

_____________________________________________________________________________________

FOREIGN EXCHANGE
FUTURES: MARKING TO
MARKET
In the numerical example, you consider British pounds. As indicated
before, futures contracts are standardized, which mean that the
number of currency units per contract is predetermined. For example,
a futures contract on the euro and the Mexican peso has 125,000 and
500,000 units, respectively. In the case of the British pound, there are
62,500 units per contract.

Suppose in May you buy a June futures in British pound, which means
going long in June British pound. While youll gain from the
appreciation of the British pound against the dollar, youll take losses if
the British pound depreciates.

The table summarizes the changes in the spot rate for a couple days
and the associated gains/losses. Time t on the table indicates the day
when you buy the British pound futures. t + 1, t + 2, and so on, shows
the subsequent days afterwards. Futures price indicates the daily
exchange rate that settles the futures market. As indicated before,
changes in the spot rate derive the changes in the futures price.

Suppose an initial margin of $2,000 and a maintenance margin of

$1,500.
FX Futures: A Marking-to-Market Example

Time Futures Price ($/) Change in $/ Gain/Loss Cumulative Gain/Loss Margin Account

t 1.5712 $2,000

t+1 1.5736 +$0.0024 +$150 +$150 $2,150

t+2 1.5710 $0.0026 $162.5 $12.5 $2,137.5

t+3 1.5675 $0.0035 $218.75 $231.25 $1,906.25

Time t indicates the time when you buy a futures contract at the
futures rate of $1.5712 per British pound. Next day, t + 1, the futures
price increases to 1.5736, which gives you a change in the futures
price of $0.0024 (1.5736 1.5712).

Considering the fact that your contract has 62,500 units of British
pound, your gain is $150 ($0.0024 x 62,500), which is also your
cumulative gain at time t + 1.

The gain of $150 increases your margin account to $2,150 ($2,000 +

$150). At t + 2, there is a decline of $0.0026 in the futures price
(1.5710 1.5736), which leads to a loss of $162.5 ($0.0026 x 62,500)
and a cumulative loss of $12.5 ($150 $162.5). This reduces your
margin account to $2,137.5 ($2,150$12.5).

At t + 3, the change in the futures price is $0.0035 (1.5675 1.5710).

In this case, your losses are $218.75 ($0.0035 x 62,500). Your
cumulative losses are $231.25 ($218.75 $12.5). Your margin
account is declined to $1,906.25 ($2,137.5 $231.25). However, the
maintenance margin has not been reached in this example.

The marking-to-market process implies that, rather than directly

purchasing or selling currency, the holder of a futures contract
considers whether to maintain his long or short position everyday as
the spot exchange rate changes. You can end this if you sell a
contract with the same maturity, in which case your net position will be
zero. This is how futures contracts are closed out in most cases.
_____________________________________________________________________________________
umerical Example

Suppose an investor owns 100 shares of a stock purchased for $40 per share. However, that stock has increased in

price, now trades at $60. The "mark-to-market" value of the shares is equal to (100 shares $60), or $6,000,

whereas the book value might (depending on the accounting principles used) be $4,000, based on the price paid for

those stocks.

Similarly, if the stock falls to $30, the mark-to-market value is $3,000. In this case, the investor has lost $1,000 of the

original investment. If the stock was purchased on margin, this might trigger a margin call and the investor would

have to come up with an amount sufficient to meet the margin requirements for his account.

____________________________________________________________________________________