Mark-to-Market Losses
What it is:
Mark-to-market losses are losses in an asset's value caused solely by a decline in market price.
How it works (Example):
Mark-to-market losses appear when an asset is priced according to a mark-to-market (MTM) accounting method. Under MTM, an asset's value is adjusted on a daily basis to reflect its market price. In other words, an asset experiences a mark-to-market loss if its market price falls from one business day to the next. For example, a mutual fund sustains a mark-to-market loss if its net asset value (NAV) falls from $1,200 at the end of trading on Monday to $1,100 at the end of trading on Tuesday.
Why it Matters:
Mark-to-market losses are similar to paper losses in the sense that they are unrealized losses. That is, a holder does not experience a capital loss because he or she has not actually sold units of the asset.
