What is a Trading Book?

Explanation

The portfolio managersPortfolio ManagersA portfolio manager is a financial market expert who strategically designs investment portfolios.read more must maintain separate trading books for each client to help them in various compliance and maintain transparent records. These books are maintained to record the transactions so that there shouldn’t be any problem or confusion in the future between clients and portfolio managers. It also helps solve any problem if it arises and makes the accounts and understanding simpler.

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Trading Book (wallstreetmojo.com)

Example of Trading Book

ABC Bank maintains the D-mat accounts of the clients or investors. Mr. A regularly deals in various securities. The details of various securities dealt with by Mr. A is as under:

Prepare this book, which is to be maintained by the bank, and also state how it is useful for Mr. A?

Solution:

The trading Book of Mr. A is as under:

Trading Book is useful for Mr. A in the following ways:

  • It helps to view the records of the transactions done by Mr. A.A can access the record of transactions at any time.This book helps Mr. A to view profit or loss on the transactions made.It also helps with planning.

Effects of Trading Book

  • With the help of this book, the responsibility and liability of the client and investor can be fixed as the client can verify the transaction he has done, and the bank to maintain the records and to verify whether payment credited or debited as the case may be to the exchange’s account.They also help to verify the purpose of trading by the client. If the purpose is unlawful, the portfolio managers can warn the client and report to the authorities accordingly.Maintaining records is shifted from an investor to a portfolio manager with this book.The trading books can be used as legal evidence in the court of law, and it is termed and recognized as legal documents.It is also recognized as an accounting book that contains all the financial records of the portfolio managers.The burden of investors is reduced as they do not have to maintain every record of the transactions. The records are maintained by the Portfolio managers, who also help calculate the tax liability.Past transactions can be accessible in a fraction of time, which helps both the portfolio managers and the investors smoothly conduct the transactions.

Advantages

  • Trading Book helps plan the transactions to earn the maximum profits and prevent unnecessary losses.This book helps to track and view the record of transactions.It is accepted as legal proof in a court of law and considered a legal document.It helps to minimize the risk by fixing the responsibility of maintaining the records and tracking the records.With the help of these books, fraud can be easily determined and prevented by reporting to the concerned authorities.Each transaction entered into by the client is maintained through this book.With the help of this book, the brokerage calculations become easy by the portfolio managers.They can also be recorded as accounting ledgersAccounting LedgersLedger in accounting records and processes a firm’s financial data, taken from journal entries. This becomes an important financial record for future reference. It is used for creating financial statements. It is also known as the second book of entry.read more in books of accounts.Portfolio managers are responsible for maintaining the whole trading book of their institutions and a separate one for their clients, which helps them maintain better and more transparent records.With the help of this book, past activities can be viewed easily.It is a collection of several fiscal instruments that help in the smooth conduct of the business of portfolio managers.The trading book helps the investor plan the investment and effectively utilize resources and investment.

Conclusion

A trading Book is a type that the portfolio managers maintain to maintain the records of the transactions entered into and the clients. Two trading books are to be prepared by the portfolio managers; one is a consolidated book containing all the records of all transactions entered into by portfolio managers. The other is a separate book for each client. It is also a legal document and accounting ledger that can be presented as proof and accepted validly. With the help of this book, we can detect fraud from the nature of transactions and prevent it. These books also help inFinancial planning is a structured approach to understanding your current and future financial goals and then taking the necessary measures to accomplish them. Because this does not begin and end in a specific time frame, it is referred to as an ongoing process.read more financial planningFinancial PlanningFinancial planning is a structured approach to understanding your current and future financial goals and then taking the necessary measures to accomplish them. Because this does not begin and end in a specific time frame, it is referred to as an ongoing process.read more and the optimum utilization of resources.

This article has been a guide to Trading Book and its definition. Here we discuss the example and effects of the trading book along with advantages. You may learn more about financing from the following articles –

  • Basis TradingNoise TraderAlgorithmic TradingTop 10 Best Books on Bond Trading