Intraday trading

Some trading areas (e.g. FX trading) make a high proportion of their profits and
losses by trading during the day. Daily risk reports only report the risk from end of
day positions being held to the following trading day. For these types of trading, daily
risk reporting does not give an accurate picture of the risks of the business.
Backtesting is based on daily risk figures and a 1-day holding period. It should use
P&L with contributions from intra-day trading removed. The Appendix gives a detailed
definition of intra- and interday P&L with some examples.
It may be difficult to separate intraday P&L from the general P&L figures reported.
For trading desks where intraday P&L is most important, however, it may be possible
to calculate synthetic P&L relatively easily. Synthetic P&L is based on revaluing
positions from the end of the previous day with the prices at the end of the current
day (see below for a full discussion). Desks where intraday P&L is most important
are FX trading and market-making desks. For these desks, there are often positions
in a limited number of instruments that can be revalued relatively easily. In these
cases, calculating synthetic P&L may be a more practical alternative than trying to
calculate intraday P&L based on all trades during the day, and then subtracting it
from the reported total P&L figure.