Quick Definition

Netting is a method used in finance to consolidate or offset the value of multiple positions or payments between two or more parties to reduce the number of transactions required and manage risk.

Examples

• 1Two companies that owe each other money may use netting to offset their debts, resulting in a single payment from one to the other.
• 2In foreign exchange, netting can be used to consolidate multiple currency positions into a single net position per currency, reducing the complexity and costs of managing multiple transactions.
• 3During a financial swap, counterparties may agree to net out payments owed on the same date, simplifying the payment process and reducing credit exposure.

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