Netting is the process of consolidation of positions that occurs when two positions in the same instrument and on same account are in opposite direction and thus fully or partially reduces the total market exposure in the instrument. It is the process in which a buy position and sell position are matched to remove both or yield a remainder, if one is bigger than the other.
Since an account may have many positions in the same instrument opened at various times, the client may choose to close them explicitly or implicitly.
Explicit closing is particularly useful when multiple positions are held in the same instrument on the same account, and taxation laws, like capital gains rules, make it important to precisely control the exact position to close.
When placing the closing order, the PositionId of an existing position is specified, resulting in two opposing positions linked to each other through the RelatedPostionId.
Netting will occur explicitly between these two positions and will not affect other existing positions. If the positions are of different size, the larger position will remain with the remainder amount. A position may only have one RelatedPostionId, so it is not possible to explicitly close a position with two or more opposite positions.
A position may be implicitly closed by opening a unrelated position that fully, or partially, reduces/negates the exposure in the original position. With no relation between positions, the FIFO (first in-first out) principle is used. Thus if two long positions match a short (sell) position, the oldest position will be netted first.
Partial netting is when the netting between two position won’t close both positions. If the positions are of different size, the larger position will remain with the remainder amount.
Time of netting
For clients, two netting modes are available. In both cases, final settlement still occurs at end of day, but it can be practical to only see active open positions.
The Portfolio Clients endpoint allows qualified clients to switch the netting mode.
End of day (Default)
With End of day netting, positions remain open and visible until the nightly end of day (EOD) settlement processing.
The main difference with Intraday netting is that positions are netted immediately on execution. They disappear from the Positions lists, details are available as new entries in the Closed Positions list.
In some cases, netting will not take place before the exchange has reached the end of trading day. Thus after-hours trading and time zones may add to the end of day netting time. If this is an issue, switch to Intraday netting.
In general, positions may be netted if they are of the same instrument and are on same account. But there are some nuances and exceptions:
- Positions will not be netted if there are active related orders, such as GTC orders. (Does not apply for Futures) Day orders are cancelled before netting.
- FxSpot & FxForwards may be netted if ValueDate are the same.
- Futures. Netting will occur on positions even if there are active related GTC orders.
- Options must have same ExpiryDate, StrikePrice and same Call/Put direction.
- Exotic options must have same type and same barrier values.
- Bonds. Specific instruments can be configured to be exempt from netting.
- Bonds. Drawn bonds will not be netted.