Daily revaluation of derivative positions

What does marking to market mean, and how does it shape risk management in derivatives trading?

Marking to market revalues positions at current market prices (or model prices calibrated to them) every day, with gains and losses recognised immediately. It makes P&L and margin calls reflect current conditions, limits counterparty credit exposure, and forces hedges to be judged daily. The catch is that a position that would be profitable if held to maturity can still produce large interim losses and margin calls, so liquidity and hedging strategy must cope with day-to-day swings.