Rebalance
Rebalancing helps you realign your portfolio positions with your model – a model portfolio or an investment plan. The system compares portfolios with the model and generates trade orders for positions that deviated outside the minimum and maximum thresholds specified in the model.
Rebalancing settings and parameters
The details of the rebalancing process are set in the system preferences and defined further when you run rebalancing:
System-wide settings in preferences include options related to cash usage, trade order generation, and market prices to use. See Preference - Portfolios in FA Back reference.
Before you rebalance, read about the general rebalancing logic below. Decide which rebalancing approach to choose: conservative rebalance, full rebalance, full rebalance including outstanding orders, exchange, invest cash, cover for cash, and model change (see Rebalance methods). Once you chose the approach, select the rebalancing parameters and run rebalancing: define the affected portfolios, select the portfolio positions and accounts to include in the run, and specify the rebalancing and trade order generation parameters. See the instructions in Rebalance portfolios against a model portfolio, Rebalance portfolios against an investment plan , and the field descriptions in Rebalance window.
Rebalance logic
When a portfolio is rebalanced, the system creates the trade orders based on the following logic.
Estimates the excess cash by checking if the portfolio's account balance is above the model portfolio share for cash. The estimation includes the accounts you chose and the cash from sells, if chosen.
Compares portfolio positions to the model:
Calculates the difference for each position in portfolio currency.
Calculates the number of units you would need based on the difference in portfolio currency and the market price on the selected date. Number of shares is calculated with as many decimals as defined in security type preferences, or overridden with the security block size.
Creates trade orders:
Buy trade orders are created first. Then the system creates sell trade orders. Buy trade orders are created, from largest to smallest, as long as there is excess cash in the portfolio. The last trade order might be only partially fulfilled. Sell trade orders are created with the same logic: from largest to smallest, until the target cash balance is reached.
If the difference per position measured in portfolio currency doesn't match a whole number of units (see the previous step), the system adjusts the trade orders following the logic defined in the rebalancing settings in Preferences . Trade orders are recalculated based on:
Amount (using the calculated number of units and difference, and recalculating the unit price)
Trade amount (using the calculated number of units and unit price, and recalculating the trade amount)
For details, see "Create trade orders based on trade amount" and "Create trade orders based on trade amount" in Rebalancing.
Rebalancing portfolio cash
To keep portfolio's cash on a certain level, add the currency security as a position in the investment plan or model portfolio and specify the target share. For example, if you have EUR accounts in your portfolio and want to have 1% cash in euros, add the currency security EUR with a target share of 1%.
You can choose to rebalance only accounts, leaving out the portfolio positions when you run rebalancing (see the options described in Rebalance window). For the system settings related to accounts and cash buffers in rebalancing, see Preference - Portfolios in FA Back reference.
Available cash for buys
You can define if you want to create buy trade orders only with available cash or use the cash received from sells as well (see Rebalance methods). If you use the cash from sells, you can define the share of sells to be used for buys, to make sure you have some cash buffer if the prices fluctuate. See Preference - Portfolios for details.
Cash from existing outstanding trade orders can also be used for buys (see Rebalance methods).
Market prices
By default, rebalancing uses the latest market prices in relation to the selected rebalancing date. By default, the market prices and relevant FX rates stored in FA Back are used. You can choose to use the 15-minute delayed market prices from your market data provider. See Preference - Portfolios for details.
Trade amount and number of units
The system adjusts the trade amount or the number of units in the trade order if they don't match (for example, you need to buy for 300€, the unit price is 80€, and the security is traded in whole units). For details, see "Create trade orders based on trade amount" and "Create trade orders based on trade amount" in Rebalancing.
The number of units in the trade order is calculated with the number of decimals defined in security type preferences, or taken from the security's block size (if it is specified).
To prevent the creation of small trade orders when the investment portfolio only slightly deviates from the target, you can set the minimum trade order amount. See the options described in Rebalance window). This setting is not applied if you remove a position from the model to sell it away completely.
Selling an entire position
Rebalancing recognizes when you sell out the entire position by removing it from the model. In this case:
The minimum trade amount of the orders has no effect - the sell orders are generated without size restrictions.
The amount of the order isn't adjusted, but corresponds with the current position amount in the portfolio.
If rebalancing is restricted to accounts, entire positions are not sold unless there is "room to sell" based on the target cash balance.
Rebalancing marks such trade orders by creating them with a separate transaction type, as configured in "Select the transaction type used for trade orders when selling an entire position" in Rebalancing preferences (see Rebalancing). Rebalancing creates these trade orders as unit-based.
Future contracts in rebalancing
Rebalancing supports including future contracts in the model. The Futures and Forwards security types have the "Future contract" setting defined in Preference - Securities - Security types.
For forwards, the setting is "Yes - charge cost later". Buying a future based on the model portfolio share doesn't deduct the available cash.
For futures, the setting is "Yes - charge cost immediately". Buying a future based on the model portfolio share deducts the available cash only for the amount of cost, if rebalancing is set to calculate fees.
For both options, selling a future doesn't add to the available cash if one of the options for using cash from sells is used.
Collateral in rebalancing
To manage collateral in rebalancing, transfer collateral positions from the main portfolio into a locked sub-portfolio. When rebalancing the main portfolio, the collateral positions from the sub-portfolio are taken into account when determining how much to buy or sell in total, but the collateralized positions in the locked sub-portfolio are not touched.