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.

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