DEFINITION of 'Netting'

Consolidating the value of two or more transactions, payments or positions in order to create a single value. Netting entails offsetting the value of multiple positions, and can be used to determine which party is owed remuneration in a multiparty agreement.


Netting is a general concept that has a number of more specific uses. In a case in which a company is filing for bankruptcy, parties that do business with the defaulting company will offset any money owed to the defaulting company with any money owed by the defaulting company. The remainder represents the total amount owed to the defaulting company or money owed by it, and can be used in bankruptcy proceedings.

Companies can also use netting to simplify third-party invoices, ultimately reducing multiple invoices into a single one. For example, several divisions in a large transport corporation purchase paper supplies from a single supplier, but the paper supplier also uses the same transport company to ship its products to others. By netting how much each party owes the other, a single invoice can be created for the company that has the outstanding bill. This technique can also be used when transferring funds between subsidiaries.

Netting is also used in trading. An investor can offset a position in one security or currency with another position either in the same security or another one. The goal in netting is to offset gains in one position with losses in another.

  1. Depository Trust Company - DTC

    One of the world's largest securities depositories, it holds ...
  2. Multilateral Netting

    An arrangement among multiple parties that transactions be summed, ...
  3. Clearing House

    An agency or separate corporation of a futures exchange responsible ...
  4. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  5. National Securities Clearing Corporation ...

    A subsidiary of the Depository Trust & Clearing Corporation ...
  6. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
Related Articles
  1. Markets

    Material Adverse Effect A Warning Sign For Stocks

    Learn what this phrase means and how to spot it in a company's financial statements.
  2. Investing Basics

    Hedge Fund Fees: Exotic Expenses

    Warren Buffett made a bet with Protégé Partners, a fund of funds hedge fund manager, that the S&P500 would beat a group of hedge fund managers selected by Protégé. The bet officially started ...
  3. Markets

    How To Calculate A Z-Score

    Investors need to know how to detect signs of looming bankruptcy. The Z-score can help.
  4. Personal Finance

    Top 8 Ways Companies Cook The Books

    Find out more about the fraudulent accounting methods some companies use to fool investors.
  5. Economics

    Inside National Payment Systems

    Investopedia explains: The global interconnection of U.S. payment systems makes commerical and financial transfers possible.
  6. Forex Education

    The Hazards Of Currency Movements

    Devaluation and revaluation are official changes in the value of a nation’s currency in relation to other currencies. The terms are generally used to refer to officially sanctioned changes in ...
  7. Investing Basics

    Offset Risk With Options, Futures And Hedge Funds

    Though all portfolios contain some risk, there are ways to lower it. Find out how.
  8. Bonds & Fixed Income

    An Overview Of Corporate Bankruptcy

    If a company files for bankruptcy, stockholders have the most to lose. Find out why.
  9. Credit & Loans

    Best 3 Online Auto Loan Calculators that Include Tax

    Learn where you can find the best auto loan calculators online that include sales tax, and understand the different features these calculators offer.
  10. Entrepreneurship

    5 Things to Do Before Submitting a Loan Request for Your Startup

    Learn the five key steps to securing a small business startup loan, what documents to present, what personal finance items to check and where to apply.
  1. What are some types of financial netting?

    Whenever two parties in any financial relationship square up or consolidate their accounts with one another, it is called ... Read Full Answer >>
  2. What is the difference between payment netting and close-out netting?

    Both payment netting and close-out netting are methods of settlement between two or more parties, used to reduce risk exposure. ... Read Full Answer >>
  3. What are the differences between chapter 7 and chapter 11 bankruptcy?

    Chapter 7 bankruptcy is sometimes also called liquidation bankruptcy. Firms experiencing this form of bankruptcy are past ... Read Full Answer >>
  4. Are secured personal loans better than unsecured loans?

    Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
  5. Do FHA loans have prepayment penalties?

    Unlike subprime mortgages issued by some conventional commercial lenders, Federal Housing Administration (FHA) loans do not ... Read Full Answer >>
  6. Can FHA loans be refinanced?

    Federal Housing Administration (FHA) loans can be refinanced in several ways. According to the U.S. Department of Housing ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center