Accounting for net trading income
Trading positions are held at fair value, and the resulting gains and losses are included in net trading income, together with
interest and dividends arising from long and short positions and funding costs relating to trading activities. Incremental
costs are reported within net trading income if they are directly attributable to generating identifiable trading income.
Income arises from both the sale and purchase of trading positions, margins which are achieved through market making
and customer business and from changes in fair value caused by movements in interest and exchange rates, equity prices
and other market variables.
Gains or losses on non-trading financial instruments designated or mandatorily at fair value, with changes in fair value
recognised in the income statement, are included in net trading income where the business model is to manage assets and
liabilities on a fair value basis, which includes the use of derivatives. Gains and losses are also reported in net trading
income where an instrument is designated at fair value to eliminate an accounting mismatch.