What is a Blotter?
A blotter is a record of trades and the details of the trades made over a period of time (usually one trading day). The details of a trade will include such things as the time, price, order size, and a specification of whether it was a buy or sell order. The blotter is usually created through a trading software program that records the trades made through a data feed.
The purpose of a trade blotter is to carefully document trades so that they can be reviewed and confirmed by a trader or brokerage firm. The blotter is used in the stock market, foreign exchange market, and the bond market. It can be customized based on the needs of the user. A trade blotter is also used in the options and commodity market.
A broker usually provides a blotter to its traders as a software program. A blotter includes what security was traded, the time of trade, the quantity and price of sale or purchase, the ECN market the trade occurred over, and whether it was a buy, sell, or short order.
The blotter also indicates whether a trade was settled appropriately and includes orders that were entered but canceled before being filled. The trader can customize what details to be shown on the blotter. A broker uses a blotter to keep record of all transactions in the event that any issue with a trade arises.
- A blotter is record of trade details and is usually created through a trading software program.
- It can be used for a variety of purposes. Traders use it evaluate and analyze their trading positions at the end of a day while regulatory agencies like the SEC use it to detect cases of illegal trading.
How Are Blotters Used?
A blotter can be used with or in place of a trading journal by traders who utilize it to improve their trading techniques and strategies. At the end of a trading day, traders will usually use the blotter to review how well they performed. The blotter can be sorted through to review areas s/he could have performed better in, such as timing with entries and/or exits.
Compliance departments and regulators, such as the Securities Exchange Commission (SEC) also sort the blotter to detect whether any illegal trading has been done. The sorting can be done in numerous ways to reveal any discrepancies in trading. During an SEC audit, trading blotters are used by firms to show a record of their trades by type of investment. For example, a separate trading blotter will be used for equities and another one for fixed-income securities and so on.
If some trades were carried out on stocks on the Watch List or Restricted Trading list, this might indicate insider trading. Blotters might also show some portfolio managers showing favoritism to select clients if - certain client accounts on the blotter frequently have profitable trades; client accounts have considerable different purchase or sale prices of the same security; certain types of accounts that command the highest commission fees are prioritized over other accounts in trading; etc.
Furthermore, a portfolio manager involved in investment strategy that deviates from the strategy disclosed to clients may be found out through a blotter. For example, a supposed buy and hold investment portfolio actually having only short-term traded securities is a red flag.
Any unusual trading activity highlighted on a blotter will be investigated further to determine whether any wrongdoing was carried out.
Example of a Blotter
Investment firm ABC is preparing for an SEC audit. It separates out its trades by type of investment and generates a trading blotter for each investment for the time period requested by the SEC. Each excel sheet contains details of the trade as shown below.
|Client name||Trade name||Settlement Date||Buy/
In the case of fixed-income securities, such as bonds, an additional column called Accrued Interest, is added to the sheet.