What Is a Blotter?
A blotter (also known as a deal blotter or trade blotter) is a physical or digital record of all trades made over a specific time period (usually one trading day), along with their relevant details.
KEY TAKEAWAYS
A blotter is a detailed record of one’s trading activity and history.
Clearing firms and regulatory agencies like the SEC use trade blotters to adjust or correct outtrades and to detect instances of illegal trading.
A blotter can also be used by traders to evaluate and analyze trading positions at the end of a day.
Understanding Blotter
The purpose of a trade blotter is to meticulously document trades so that they can be reviewed and confirmed by a trader or brokerage firm. The blotter is mostly used in the stock market, foreign exchange market, and bond market. It can be tailored to the user’s specifications. A trade blotter is also used in the commodity and options markets.
The specifics of a trade will include the time, price, order size, and whether it was a buy or sell order. This serves as a transaction audit trail and is useful for determining whether a specific trading strategy was successful.
While blotters were once written on large boards or paper spreadsheets, they are now usually generated by trading software programs that automatically record trades made via a data feed.
A blotter is typically provided to traders as software by a broker. It includes the security traded, the time of trade, the quantity and price of sale or purchase, the ECN market the trade occurred on, and whether it was a buy, sell, or short order.
The blotter also shows whether a trade was properly settled and includes orders that were entered but canceled before they were filled. The trader can choose which details appear on the blotter. A blotter is used by a broker to keep a record of all transactions in case there is a problem with a trade.
Blotter Usage
Traders who use a blotter to improve their trading techniques and strategies can use it in addition to or instead of a trading journal. Traders typically use the blotter at the end of a trading day to assess how well they performed. They can go through the blotter and look for areas where they could have done better, such as timing with entries and/or exits.
Compliance departments and regulators, such as the Securities and Exchange Commission (SEC), also sort the blotter to determine whether any illegal trading has occurred. Sorting can be done in a variety of ways to reveal any discrepancies in trading. Trading blotters are used by firms to show a record of their trades by type of investment during an SEC audit. For equities, for example, a separate trading blotter will be used, as will another for fixed-income securities, and so on.
If some trades were made on stocks on the watchlist or restricted trading list, this could be an indication of insider trading. Blotters may also reveal that some portfolio managers favor certain clients if the following (or other information) is revealed:
Certain client accounts on the blotter frequently have profitable trades.
Client accounts have considerably 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.
A portfolio manager who is involved in an investment strategy that differs from the strategy disclosed to clients may also be discovered using a blotter. A red flag is when an ostensibly buy and hold investment portfolio contains only short-term traded securities.
Any unusual trading activity noted on a blotter will be thoroughly investigated to determine whether any wrongdoing occurred.
