Trading Assets

Trading assets are a collection of securities held by a firm for the purpose of reselling for a profit. Trading assets are recorded as a separate account from the investment portfolio. Trading assets may include U.S. Treasury securities, mortgage-backed securities, foreign exchange rate contracts and interest rate contracts. Trading assets include those positions acquired by the firm with the purpose of reselling in the near term in order to profit from short-term price movements. Banks that make a market in certain securities can do so with these trading assets.

Trading assets are recorded at the fair value when they are purchased and sold. When trading assets are held by banks for other banks, they are recorded as marked-to-market, thereby adjusting to the current market value. Certain banks are required to file reports with the government and the Federal Deposit Insurance Corporation (FDIC) to report this activity.

For example, bank XYZ will likely have an investment portfolio with various bonds, cash instruments and other securities that contribute to the long-term value of the bank as a business entity. The securities in the investment portfolio might be used to purchase other businesses, assets or put toward other long-term goals of the bank. Bank XYZ would hold its trading assets in an account separate from the long-term investment portfolio, hold them for a short period of time, and trade them as appropriate in the marketplace to make a profit for the bank.