Positions

A deal is an event. A position is a state. A deal is a discrete, identified, versioned agreement struck at a point in time. A position is what the firm is left holding once every deal touching some dimension has been added up.

Almost everything else here follows from that one distinction. A position has no identity, no counterparty, no version and no lifecycle, because it is derived rather than recorded.

A position is a binding commitment to buy or sell a given amount of financial instruments at a given price. Cash is added up separately to make the cash position.

That definition omits a trade date, a counterparty, a version, a confirmation and an authorisation status. Those are properties of deals. A position inherits its economics from the deals beneath it and nothing else.

Trade modeling covers the deal side: the four entities a trade is built from, and the relationships between them.

A deal changes for one reason only, which is an explicit amendment. A position changes for two.

The first is the arrival of deals. The second is the passage of time, and it operates with no deal being touched at all.

• Trades mature. Forward positions become cash positions as trades reach their delivery date, and the calendar alone moves them.
• The value date rolls. A nostro rollover converts posts of value today into cash positions, and spot positions held at end of business roll to a new value date on a tom/next basis. The position moves bucket with no trade amended.
• Market data moves, so the valuation changes continuously.

A position discards what the deals carry: the counterparty, the time of striking, the trader, the structure the deal belonged to. That loss is the point, because a trader managing exposure does not need to know that a net short arose from forty client trades with thirty counterparties.

The consequence for the model is that both views must remain available. Position level is the summary to work from, and deal level is the ground truth to fall back on when the summary raises a question. Drill-down has to reach deal level, and a position-level view that cannot be decomposed is not sufficient on its own.

No confirmation, authorisation, amendment or version exists at position level, and the reason is structural rather than accidental. There is no counterparty to agree with, no legal contract to confirm, and no discrete change to authorise. Every control in the system attaches to the deal.

The corollary matters for controls: a position cannot be audited directly. The deals beneath it are audited and the aggregation is trusted. That is why drill-down to deal level, completeness checks over the book tree, and surfacing valuation errors at the aggregate all matter.

Three neighbouring disciplines are worth separating, because the word "position" is used loosely across them.

Position management is fundamentally about cash. It is not about Greeks, which is risk management, and it is not about where the risk sits, which is risk moves. Where "position" is used to mean "the risk I am running", that is the risk management sense borrowing the word.

Trade classification covers the risk moves side: an intra-entity transfer moves risk between books without taking an external position.

The distinctions that recur are the ones that follow from time and from the dimension being aggregated.

Positions are also cut by currency against currency pair, and by tenor bucket. Which cut is wanted depends on who is asking, so the dimension is a parameter of the view rather than a property of the position.

Spot trades are most of the volume, and a spot carries almost nothing beyond its contribution to a balance: no optionality, no schedule, and next to no lifecycle. At sufficient volume the individual spot deal stops being interesting and only the aggregate matters, which raises the question of whether a spot is better modelled as a position contribution than as a full deal record.

This is the deal and position distinction under pressure. It is recorded here as an open question rather than a decision, because treating a spot as anything other than a deal would remove the identity, versioning and audit trail that every control depends on.

The definitions and distinctions on this page are drawn from internal analysis notes on positions, which in turn summarise requirements material. No external standard is cited.

• Trade — the structure note that orders this cluster, and where to read this page in it.
• Trade modeling — the deal side, and the four entities a trade is built from.
• Trade classification — risk moves, and what a booking contributes to.
• Knowledge — the hub of all knowledge notes.