Netting refers to the process of offsetting opposing positions, claims, or cash flows to form a single net position.
In trading, this means that multiple open positions in the same instrument are combined into one net position instead of being managed separately. In financial accounting and banking, netting is used to reduce operational settlement complexity and counterparty risk.
In trading platforms such as MetaTrader 5, the netting model is the standard, where only one net position per instrument can exist at any time. In contrast, a hedging model allows simultaneous long and short positions in the same instrument.
Netting can improve clarity and reduce margin requirements, but it also limits certain trading strategies that rely on holding opposing positions simultaneously.
