Offsetting transaction

A second deal that reverses the direction of an existing one: the same instrument, the same size, the opposite side. Because the two obligations cancel each other, the exposure between them is nil, and what remains is the difference between the two prices plus whatever costs each side of the pair carried.

What the platform does with the pair depends on the account's mode. Under netting, positions in one instrument combine into a single net figure, so an offsetting deal reduces that figure or takes it to zero and the position disappears. Under hedging, the second deal opens as a position in its own right and both sit in the list at once. The distinction is not cosmetic: two open positions carry two sets of financing and are collateralised under the firm's own rules, while their combined market exposure is nothing.

The error worth naming is geographic. A contract for difference is bilateral, so an opposite deal at another firm offsets nothing: each contract remains live with the firm that wrote it, each accrues its own costs, and each is collateralised separately. Practitioners also disagree about holding a matched pair at all rather than closing it, one side arguing that it preserves an opening price and avoids the cost of re entering, the other that it is two sets of charges for an exposure of zero. The arithmetic of which is cheaper depends on the costs of the specific instrument rather than on a general rule.