Rebalance parameters - details

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. 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.

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 from FA 3.8 onward) 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 rebalacing can buy is the cash exceeding the defined target share, and rebalancing would leave the target share's worth of cash in the portfolio.

When calculating how much to buy or sell, rebalancing always uses the latest available market prices in relation to the selected rebalancing date. By default, the latest market price entries (and relevant fx rates for converting prices to portfolio currency) are fetched from FA. Your market unit price might be larger than the difference you need to cover.

However, you can also enable rebalancing with real-time 15 minutes delayed prices, fetched with a corresponding Market Price Connector from SIX, to get more up-to-date results from rebalancing your portfolios. You can enable this in rebalancing Preferences - when enabled, every time you trigger a rebalance on your portfolio(s), the market price connector fetches the latest available prices for all your positions' securities directly from SIX, and uses the prices when calculating your trade orders. Rebalancing will always use the latest available price it can find - if you the connector to SIX is not enabled, or if you for some reason don't get a price through the connector for a security, then the latest available price stored in FA is used. Also, prices fetched from SIX are converted to portfolio currency with latest FX rates stored in FA when necessary.

The latest available market price is also set to the trade order, depending on whether you have selected to calculate your trade orders based on amount.

When creating trade orders with rebalancing, the trade orders can be created either based on the amount or trade amount of the trade order. Which approach is used can be set in rebalancing Preferences: you can choose to always "Create trade orders based on trade amount (calculate unit price based on amount and difference)" (default option) or to "Create trade orders based on amount (calculate trade amount based on amount and market unit price)".

Despite your selection, the amount is always calculated in the same way as difference in your portfolio compared to the model divided by market unit price - the selection determines whether the final trade orders are created by adjusting the unit price or trade amount to achieve valid calculations for amount * unit price = trade amount.

Example:

You need to buy for 300 €, your unit price is 8 € per share => Number of shares you need is 300 € / 8 € = 37,5

However, if you are buying a stock with 0 decimals allowed, then you actually get only 37 shares (since you cannot buy 0,5 shares) => Amount (37), unit price (8 €) and difference (300 €) don’t match ==> 37 * 8 € = 296 € instead of 300 €

Preferences come into play on what to adjust in the order for the calculations to match – the amount of the trade order is always calculated the same way:

a) “Create trade orders based on trade amount (calculate unit price based on amount and difference)” => Fixes amount (e.g. 37 share) and difference (e.g. 300 €), and then recalculates the unit price based on them ==> 37 * 8,108108.. € = 300 €

b) “Create trade orders based on amount (calculate trade amount based on amount and unit price)” => Fixes amount (e.g. 37 shares) and unit price (e.g. 8 € ), and then recalculates the trade amount based on them ==> 37 * 8 € = 296 €

Trade orders created by rebalancing indicate whether the trade order was created based on trade amount or units, as defined in the Rebalancing Preferences. This information is stored on the trade order as trade order's Execution method (available from FA 3.8 onward) and in trade order's "Internal info" as follows:

When you are using the default setting to "Create trade orders based on trade amount", most trade orders are calculated based on the trade amount (execution method "Net trade amount" and internal info "type=CASH"), but when selling away an entire position or all securities in the portfolio, the trade orders are always calculated based on the amount / units (execution method "Units" and internal info type=UNITS). In addition, in such a scenario, rebalancing supports creating the "sell units" trade orders with a different transaction type (configurable in Rebalancing Preferences).

The decimal places allowed for the amount of the trade order (how many decimals are used to announce the amount of the trade amount) can be defined for each security in the Block size field in the security window. For example, if the block size for a security is defined to be 0,01, the amount of the trade orders for this security are created with two decimal places. If no block size is defined for a security, the decimal places in the amount of the trade order are determined by the decimals allowed in the security type for the security defined in security Preferences.

Rebalancing has logic to recognize when selling an entire position from a portfolio. This usually happens when you remove a security from your model portfolio or investment plan, and want to get rid of the entire position in your portfolio as well. When selling an entire position, the minimum change you have defined has no effect - when selling an entire position, the sell orders are generated without size restrictions to ensure you get rid of the entire position. The amount of such an order is also never 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 identifies such positions through 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. In addition, rebalancing creates these trade order as unit-based (see Calculating trade orders based on amount or trade amount for more details).

Rebalance parameter "Filter out small trade orders based on "Position is within min/max share" (available from FA 3.8) allows you to define per position in your portfolio's investment plan or model portfolio how much you allow it to fluctuate, and to rebalance only the positions that are outside your thresholds. Essentially, only positions that have deviated outside your minimum and maximum thresholds will get trade orders created for them - if your position is within your minimum and maximum thresholds, no trade orders will be suggested for it.

When you have selected filtering based on "Position is within min/max share", the system calculates a minimum trade amount separately for buy and sell orders, and only if each individual order is larger than the minimum trade amount, the order will be created. The minimum trade amount for each trade order is calculated as follows:

Min share % and Max share % are optional fields for investment plans and model portfolio, thus it is possible that your plan/model only contains target shares and no minimum and maximum thresholds, or that only some positions in you plan/model contain minimum and maximum thresholds. Even if filtering based on "Position is within min/max share" is selected, the filtering is applied on a position only when its Max share % > 0 (in that case even if Min share % has not been specifically defined, 0% minimum threshold is applied). This means that you can have plans/models with minimum and maximum thresholds applied only to some positions - positions that don't have the max thresholds are rebalanced without filtering when "Position is within min/max share" is selected.

Rebalancing allows you to define a limit for cash from sells used for buys in Rebalancing Preferences (available from FA 3.10 onward.) This allows you to be more conservative when doing a full rebalance: expected cash from sell orders is used to generate buys within the rebalance on one go, but sell orders' values are not counted for as 100% but for example as 90% or 95%.

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 with100€ + (100% * 100€) = 200€

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

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

When considering the available cash in the account and cash from selling "air" from position A, rebalance can buy with100€ + (90% * 100€) = 190€

=> rebalance will suggest to buy position B with 190€

Rebalancing supports defining leveraged models with future contracts. Futures are identified based on the the security type's "Futures contract" setting in security Preferences: if either of the "Yes" options are selected, then you are dealing with a future. For "Yes - charge cost later", buying a future based on the model portfolio share would not deduct the available cash, and for "Yes - charge cost immediately", buying a future based on the model portfolio share would deduct the available cash only for the amount of cost, if rebalancing is set to calculate fees. For both options, selling a future would not add to the "available cash" if one of the options taking into account cash from sell is used.

Rebalancing also considers locked portfolios. If you rebalance a portfolio you have locked from portfolio Basic information, no buy or sell trade orders are created to the locked portfolio, and excess cash within the locked portfolio is not invested - rebalancing won't suggest to make any modifications to a locked portfolio's contents, and won't add any trade orders to locked portfolios. Locked portfolios can be used for example to manage collateral within rebalancing. First, collateral positions are transferred from the main portfolio into a locked sub-portfolio. Second, 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.

Rebalancing also takes into account the outstanding trade orders in the rebalanced portfolio. Outstanding Open trade orders are replaced with new trade orders if the portfolio is rebalanced again, and the effects of outstanding trade orders of statuses Accepted, Executable, Sent to execution, In execution, Partially executed in the market, Executed in the market and Settled in the market are taken into account when creating new trade orders, but these trade orders won't be replaced.

The effects of outstanding trade orders are taken into account depending on your selections in rebalance parameters - the outstanding trade orders are considered differently with rebalance method Full including orders compared to the other available methods.

For positions, rebalancing considers the effect of trade orders of the same type for the same security. If you should "buy" something but you already have a "buy" trade order for that security, or if you should sell but already have a sell trade order for the security, the trade amount of the outstanding order is subtracted from the suggested order.

Only trade orders of the same type are considered (e.g. if rebalancing suggests to "buy" and you have an outstanding "sell", the "buy" won't be adjusted to cover for the sell).

Example:

You would need to "buy" Security A for 100 €, but you already have a trade order to "buy" Security A for 40 €.

Rebalancing would create a "buy" trade order worth 100 € - 40 € = 60 €.

When you rebalance with the rebalance method "Full including orders", the base for the rebalance is not just the existing positions in the portfolio adjusted with certain types of orders in a certain way (as described above), but the positions in the portfolio adjusted with all outstanding trade orders. This means that rebalancing is done taking into account the effect of all outstanding trade orders both on portfolio's positions and available cash, as if the trade orders were executed with the information defined in them before rebalancing. That is, before rebalancing, the system calculates expected positions and excepted cash based on the effects of outstanding trade orders with appropriate statuses and latest available market values as described in pre-trade limits.

Full including orders rebalance method takes into account all types of trade orders on available cash, allowing you to invest money coming into the portfolio based on outstanding orders, before you even have the transactions in (whereas other methods are more conservative and only take into account orders that "reserve" cash). In addition, Full including orders rebalance method also considers a scenario when there is an outstanding trade order to "buy" a security that is that part of the model - after rebalancing there would be a trade order to sell that upcoming position.