Bookout

DEFINITION of 'Bookout'

To close out an open position in an OTC derivative, such as a swap contract, before it matures, either by taking an offsetting position in the contract or by paying the opposite party the market value of the swap agreement. A bookout may also be interpreted as an agreement to cancel an outstanding contract by the parties involved, through cash settlement of the difference between the price specified in the contract and an acceptable reference price.

BREAKING DOWN 'Bookout'

Bookouts are widely used in the electric utility industry for power scheduling convenience. This occurs when two different utilities have offsetting transactions - a purchase and a sale - for the same delivery period and at the same location. The Financial Accounting Standards Board has specific rules that govern such "netting;" the FASB mandates that financial instruments subject to bookout be accounted for using mark-to-market accounting through the income statement.

RELATED TERMS
  1. Master Swap Agreement

    A basic, standardized swap contract created by the International ...
  2. Bilateral Netting

    The process of consolidating swap agreements between two parties ...
  3. Forward Exchange Contract

    A special type of foreign currency transaction. Forward contracts ...
  4. Continuous Contract

    A reinsurance contract that does not have a fixed contract end ...
  5. Total Return Swap

    A swap agreement in which one party makes payments based on a ...
  6. Reverse Swap

    An exchange of cash flow streams that undoes the effects of an ...
Related Articles
  1. Fundamental Analysis

    Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  2. Term

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  3. Investing Basics

    Different Types of Swaps

    Investopedia explores the most common types of swap contracts.
  4. Investing

    What Warren Buffet Calls "Weapons of Mass Destruction": Understanding the Swap Industry

    A full analysis of how the swap industry works.
  5. Options & Futures

    Derivatives 101

    A derivative investment is one in which the investor does not own the underlying asset, but instead bets on the asset’s price movement with another party.
  6. Options & Futures

    Futures, Derivatives and Liquidity: More or Less Risky?

    Futures and derivatives get a bad rap after the 2008 financial crisis, but these instruments are meant to mitigate market risk.
  7. Options & Futures

    Why Forward Contracts Are The Foundation Of All Derivatives

    This article expands on the complex structure of derivatives by explaining how an investor can assess interest rate parity and implement covered interest arbitrage by using a currency forward ...
  8. Forex Education

    Currency Swap Basics

    Find out what makes currency swaps unique and slightly more complicated than other types of swaps.
  9. Investing

    What's an Interest Rate Swap?

    An interest rate swap is an exchange of future interest receipts. Essentially, one stream of future interest payments is exchanged for another, based on a specified principal amount.
  10. Forex Education

    Hedging With Currency Swaps

    The wrong currency movement can crush positive portfolio returns. Find out how to hedge against it.
RELATED FAQS
  1. What is the difference between forward and futures contracts?

    Fundamentally, forward and futures contracts have the same function: both types of contracts allow people to buy or sell ... Read Answer >>
  2. How can a futures trader exit a position prior to expiration?

    A futures contract is an agreement to buy or sell a commodity at a pre-determined price and quantity at a future date in ... Read Answer >>
  3. What would motivate an entity to enter into a swap agreement?

    Learn why parties enter into swap agreements to hedge their risks, and understand how the different legs of a swap agreement ... Read Answer >>
  4. What is the difference between derivatives and swaps?

    Find out more about derivative securities, swaps, examples of derivatives and swaps, and the main difference between derivative ... Read Answer >>
  5. What is the difference between derivatives and options?

    Learn how options are one type of derivative and how equity options derive their value from a stock, and understand other ... Read Answer >>
  6. What kinds of derivatives are types of forward commitments?

    Learn more about what a derivative is, what a forward commitment is and which types of derivative securities have forward ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center