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Mark-to-Market
Mark-to-market is the daily revaluation of open positions using current market prices. It determines unrealized profits and losses and forms the basis for margin calculations.
In oil trading, mark-to-market ensures that gains and losses are recognized in near real time. This process reduces credit risk but increases liquidity demands.
Daily marking can result in significant cash flow volatility, particularly during periods of sharp price movement. Traders must manage liquidity alongside price exposure.
Mark-to-market accounting reinforces discipline and transparency but requires robust pricing data and operational controls.