How does marking to market affect risk management

Question

How does marking to market affect risk management in derivatives trading?

Answer 1

If instruments are exchange traded or liquid, then marking to market is straightforward. You just require knowing the most recent market-traded price. Obviously, this doesn’t stop you also saying what you consider the value to be, or the profit you expect to build up. After all, you presumably entered the trade since you thought you would make a gain.