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Trading & MarketsReviewed 2026-07-21

Mark-to-Market

Mark-to-market values a position at its current market price rather than its original cost, recording the difference as an unrealized gain or loss.

Definition

Mark-to-market (MTM) accounting values a position at its current, observable market price at a specific point in time, rather than at the price originally paid for it. The difference between the current market value and the original cost basis is recorded as an unrealized gain or loss — unrealized because the position hasn't actually been sold, but the fund's NAV reflects the change anyway.

MTM stands in contrast to historical-cost accounting, where an asset stays on the books at its original purchase price until it's actually sold. Investment funds almost universally use mark-to-market for their NAV calculation specifically because NAV is meant to represent what an investor's stake is actually worth right now, not what it cost — an investor redeeming today should receive today's value, not yesterday's cost basis.

How straightforward marking a position is depends heavily on how liquid and observable its market price is. A position in a liquid, exchange-traded asset marks cleanly to the last trade or quote. A position without an active, observable market — an illiquid token, an OTC position, a locked or vesting allocation — requires a valuation methodology rather than a simple price lookup, which is where a fund's valuation policy and fair value hierarchy become directly relevant.

Why it matters

Because NAV, performance fees, and capital account balances all derive from marked positions, an error or manipulation in how a position is marked flows directly into every one of those downstream numbers — a single mispriced illiquid position can distort NAV, overstate performance, and misallocate capital between LPs entering and exiting at that NAV.

Mark-to-market is also the mechanism that makes unrealized volatility visible in the first place: a fund reporting only realized gains would look artificially smooth, while marked positions show the actual, sometimes uncomfortable, swings a portfolio experiences before anything is sold.

Unrealized gain or loss on a marked position

Unrealized P&L = (Current Market Price − Cost Basis) × Quantity Held

Current Market Price

The observable market price used for the mark at the valuation date

Cost Basis

The price originally paid to acquire the position, or its carrying value after any prior realized events

Quantity Held

The number of units of the position still held as of the valuation date

Marking an ETH position at period end

A fund buys 10 ETH at $2,000 per ETH — a $20,000 cost basis. At the next valuation date, ETH trades at $2,300. Marking the position to that current price gives a market value of $23,000, an unrealized gain of $3,000 flowing into NAV even though none of the ETH has been sold.

Common mistakes

Marking illiquid or thinly-traded positions using the same simple last-trade approach as liquid ones, when a last trade from days ago, on low volume, may not reflect what the position could actually be sold for today.
Ignoring bid-ask spread and using a single mid-price mark for a position that could not actually be exited anywhere near that price in size — a mark should reflect a realistic exit value, not an optimistic one.
Failing to apply the mark consistently across a reporting period — switching valuation sources or methodologies mid-period, for example a different exchange's price feed, can create the appearance of a gain or loss that's really just a change in how the position was measured.
Treating an unrealized mark-to-market gain as available cash or distributable profit — it is a valuation, not liquidity; the position still has to actually be sold, potentially at a different price, to realize that value.

In practice

Crypto positions mark cleanly when they're liquid, exchange-traded assets with continuous price feeds, but a meaningful share of a crypto fund's book — locked staking positions, vesting token allocations, DeFi LP positions, illiquid altcoins — requires the anti-spoof pricing discipline described in fair value hierarchy: pricing by verified contract identity rather than symbol, so a spoofed or airdropped token can't inherit a real asset's price.

Run your own month-end roll-forward through the free NAV Validator to check that your marks, fees, and cash flows tie out to your reported closing NAV before it goes to LPs.

Checks whether a marked NAV roll-forward — opening balance, flows, gross P&L, and fees — actually reconciles to the reported closing NAV.

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Questions, answered

What does mark-to-market mean?

Mark-to-market means valuing a position at its current market price rather than what was originally paid for it, with the difference recorded as an unrealized gain or loss that flows into the fund's NAV.

Is an unrealized mark-to-market gain the same as cash profit?

No. It reflects the position's current value, not cash in hand — the position still needs to be sold, potentially at a different price than the mark, to convert that unrealized gain into a realized, distributable amount.

How do funds mark illiquid crypto positions that don't trade on an exchange?

Illiquid or non-exchange-traded positions typically require a documented valuation methodology under the fund's valuation policy — often a fair value hierarchy that prioritizes observable inputs where available and falls back to modeled or estimated values, disclosed as such, when they are not.

Why does mark-to-market accounting matter for performance fees?

Performance fees are calculated off marked NAV, so an inaccurate or inconsistent mark on even one position can overstate or understate the gains the fee is calculated against, directly affecting how much LPs are charged.