Manage accounts and cash buffers in rebalancing

Overview

Normal rebalancing is conducted by not restricting rebalancing to accounts or excluding the accounts of the portfolio from the rebalancing - this way the rebalance is not limited and restricted to achieving the defined level of the account balance from portfolio total, but the rebalance is conducted on all selected securities based on the other selected rebalancing parameters (such as the cash to be used). This is the default selection when running a rebalance.

However, if rebalancing is restricted to accounts, rebalancing will only try to achieve the target level for portfolios' accounts. When only extra cash in portfolio is used, rebalancing will only buy enough to spend excess cash or only sell enough to cover insufficient cash, but not do any other buys or sells. If also cash from sells is included, then rebalancing will only sell to cover for potential buys, but not sell anything more so that there would be excess cash in the portfolio's account.

You can also define additional rebalancing preferences on how rebalancing tries to achieve the defined target level for accounts. Go to Preferences and select Rebalancing under the Portfolios section.

Including portfolio's cash in investment plan or model portfolio

If you want to include portfolio's account or cash balance as a position in your investment plan or model portfolio for rebalancing, add your account's currency as a position in your investment plan or model portfolio with your desired target share.

This allows you to define a target share (or minimum and maximum thresholds ) for "cash" in your plan or model. For example, if you have EUR account(s) in your portfolio and you want to target to have 1% cash in euros in your portfolio, add the currency security EUR into your investment plan or model portfolio with a target share 1%. If you have accounts in more than one currency, add all the currencies into your investment plan or model portfolio you want to define a target share for. For example, if you have EUR account(s) and USD account(s) in your portfolio and you want to target to have 1% cash both in euros and dollars in your portfolio, add the currency securities EUR and USD into your investment plan or model portfolio with a target share of 1% each.

If you have included "cash" into your model portfolio or investment plan through a currency security, the "excess cash" in the portfolio used to determine how much rebalancing can buy is the cash exceeding the defined target share, and rebalancing would leave the target share's worth of cash in the portfolio.

How to define cash buffer parameters

You can define a target range for portfolio's cash balance or buffer for cash to ensure positive cash balance. These preferences specifically affect what kind of trade orders are created when rebalancing is restricted to accounts

Define target range for portfolio's cash balance

You can Define target range for portfolio's cash balance (when rebalancing cash, portfolio is rebalanced only if cash is outside of the target range), allowing you define a minimum and maximum on your account, when the portfolio would not be rebalanced at all to avoid unnecessarily small trades when there is only a little cash in the portfolio. In addition, you can Define how much negative cash balance is increased by to cover all negative cash and Define how much positive cash balance is decreased by to ensure positive cash balance, allowing you to define a "buffer" to ensure positive cash balance after all trades have gone through, even if market fluctuates unfavourably. You can define the buffer both as percentage and in currency, when the system would use the value resulting in a larger buffer.

Example:

Allowed range for cash balance

You can define an allowed range between $0 and $10 on your account. Your model portfolio weight for cash is 0 %.

If you have 5 € on you account

=> Your portfolio will not be rebalanced at all.

If you have 15 € on your account

=> Your portfolio will be rebalanced to spend 15 €.

Buffers on the account balance

You have -100€ on your account

You have increase defined as 2% (buffer 100€ * 2% = 20€) and 10€

=> Larger of these buffers is 2 % (since 20€ > 10€), rebalancing would use cash worth -100€ - 20€ = -120€

==> Rebalancing would sell worth a bit more to ensure negative balance will be covered.

You have 100 € on your account

You have decrease defined as 2 % (buffer 100 € * 2 % = 20 €) and 10 €

=> Larger of these buffers is 2 % (since 20 € > 10 €), rebalancing would only use cash worth 100 € - 20 € = 80 €.

==> Rebalancing would use a bit less cash to ensure positive cash balance remains.

Define target range for portfolio's cash balance (when rebalancing cash, portfolio is rebalanced only if cash is outside of the target range)

Define a target range, or minimum and maximum, for portfolio's cash balance: when restricting rebalancing to accounts, portfolio is rebalanced and trade orders created only if cash is outside of the defined target range. You can for example define that if there is between $0 and $10 on your account, portfolio would not be rebalanced at all to avoid unnecessarily small trades when there is only a little cash. Defaults for minimum and maximum are 0, resulting in target range of 0 cash balance

Minimum (in currency) - define a minimum in currency for your target range
Maximum (in currency) - define a maximum in currency for your target range

Define how much negative cash balance is increased by to cover all negative cash

Define how much negative cash balance is increased by when restricting rebalancing to accounts in order to ensure positive cash balance after all trades have gone through, even if market fluctuates unfavorably. You can define the buffer both as percentage and in currency, when the system would use the value resulting in a larger buffer. For example, if you have -100€ on your account and icrease defined as 2% (buffer 100€ * 2% = 20€) and 10€, rebalancing would use cash worth -100€ - 20€ (larger buffer used, 20€ > 10€) = -120€, i.e. rebalancing would sell worth a bit more to ensure negative balance will be covered.

Increase as percentage (%) - define the increase as percentages
Increase in currency - define the decrease directly in currency

Define how much positive cash balance is decreased by to ensure positive cash balance

Define how much positive cash balance is decreased by when restricting rebalancing to accounts in order to ensure positive cash balance after all trades have gone through, even if market fluctuates unfavourably. You can define the buffer both as percentage and in currency, when the system would use the value resulting in a larger buffer. For example, if you have 100€ on your account and decrease defined as 2% (buffer 100€ * 2% = 20€) and 10€, rebalancing would only use cash worth 100€ - 20€ (larger buffer used, 20€ > 10€) = 80€.

Decrease as percentage (%) - define the decrease as percentages
Decrease in currency - define the decrease directly in currency

Define how many percent (%) of cash from sells can be used to buy with

Define how many percent (%) of cash from sells can be used to buy with - define as a number between 0 and 100. Default is 100, indicating that 100% of cash from sells is used to generate buy orders with. This setting is considered when you use a rebalance method that "buys with cash from sells": this setting limits how big a share of the sell's value is used to generate buy orders.

You can define a limit for cash from sells used for buys. This allows you to be more conservative when doing a full rebalance: With this, even if prices drop between the time of the rebalance and the time of the execution of your sell orders (and you don't end up getting as much cash from your sells as originally expected), you most likely will get enough cash from your sells to execute your buys. This is because your buys were not generated expecting 100% from your sells but a smaller percentage such as 90% or 95%. The setting in Rebalancing Preferences is considered when you use a rebalance method that "buys with cash from sells": this setting limits how big a share of the sell's value is used to generate buy orders.

Example:

You have 100€ cash in your account, and you have one position A in your portfolio that is +100€ above your target and another position B that is -200€ below your target. You are going to do a full rebalance.

When 100% of cash from sells can be used to buy with (default):

When considering the available cash in the account and cash from selling "air" from position A, rebalance can buy with

100€ + (100% * 100€) = 200€

=> rebalance will suggest to buy position B with 200€

When 90% of cash from sells can be used to buy with: