Can someone explain to me what “book-squaring” means?

I read it in the following phrase: “traders squaring their books into year-end.”


It probably means settling all open transactions, but I’d rather hear from a trader to confirm that.

Do you mean like liquidating all positions?

I don’t see how that could make sense when the year-end comes. :confused:

No, just settling in cash all outstanding transactions.

Can you briefly explain what you mean by that? How is that different from liquidating positions?

Suppose that on 12/30 you sell 20% of your XYZ shares. You simply want to make sure that you get your cash by 12/31.

Suppose that on 12/29 you buy 1,000 ABC shares. You make sure that you pay for those by 12/31.

Again, I’m speculating here that this is what is meant. I’ll happily defer to any trader who knows this stuff a lot better than I do.

Got it. Simple enough.

Would be glad if a trader can confirm this. :slightly_smiling_face:

As would I.

i’m pretty sure it’s more about making sure your assets and liabilities line up. you start with x amount of funding from corporate or whomever your principal is. you then do a whole whack of trading, for your clients, for the principal, etc., depending on what kind of trader you are. you may become a bit leveraged if your book has grown throughout the year and you may require more funding to cover your book’s risk. at the end of the year, you either cut your portfolio size down to match your funding or you get your bank/principal to boost your funding. if your bank/principal needs to provide funding to you, they may end up cutting funding from someone else which could also force that other party to sell down their book but likely it is just excess funding from somewhere else in the business or it is new funding acquired by the bank in the financial markets.

i don’t work on a desk but i have known a bunch of guys who have over the years.

Also not a trader, but this is correct (as is S2000). Doesn’t really matter what role you’re in - trading, corporate finance, etc. - “squaring your book” just means making sure your ledger is in order before the fiscal year ends.

Edit: Now would be a good time for former AFer, Former Trader, to make an appearance.

To add to previous comments:

In my previous firm, we would get an extra capital charge (as a one time cost) from our prime broker if our total overnight credit usage exceeded a certain threshold (calculated as a percentage of the average credit usage consumed throughout the year) on 31st December. As such we would make our book leaner since the cost of holding an overnight position would be prohibitive for that day. This can also be reflected in the interest component of the price of futures contract, as most prime brokers try to be as lean as possible for year end and as such prefer being long the futures given a desired delta (example, being long ES1 instead of being long SPY).

Futures therefore tend to trade at higher premiums vs the spot market leading to new year.