# Understanding Blotters: Key Uses, How They Work, and Examples

## What Is a Blotter?

A financial blotter, also known as a trade blotter, is a physical or digital record comprising all trades made over a specific period, usually a single trading day. This vital document logs details such as time, price, and order details, providing an audit trail for transactions.

Blotters are crucial for traders in stock, foreign exchange, and bond markets to analyze and confirm trades and assist regulatory bodies like the SEC in compliance checks.

### Key Takeaways

*   A blotter is a comprehensive record of trades made over a specific period, typically one trading day, serving as a crucial auditing tool for traders and regulators.  
    
*   Trade blotters are utilized in various markets, including stocks, foreign exchange, bonds, commodities, and options, providing detailed trade information like time, price, and order size.  
    
*   Regulatory bodies, such as the SEC, use blotters to review trade activities and identify any instances of illegal trading, such as insider trading.  
    
*   Modern blotters are digital and automatically generated through trading software, allowing customization based on a user’s specific reporting needs.  
    
*   Reviewing blotters helps traders analyze their trading strategies and performance, highlighting areas for potential improvement.

## How Trade Blotters Work: A Detailed Overview

 A trade blotter documents trades for review and confirmation by traders or brokerage firms. The blotter is mainly used in the stock market, foreign exchange market, and the bond market. It can be customized based on the needs of the user. A trade blotter is also used in the options and [commodity markets](https://www.investopedia.com/terms/c/commodity-market.asp).

The details of a trade will include such things as the time, price, order size, and a specification of whether it was a buy or sell order. This serves as an [audit trail](https://www.investopedia.com/terms/a/audittrail.asp) of transactions and is helpful to review if a particular trading strategy utilized was successful.

While blotters used to be written down on large boards or paper spreadsheets, today they are usually created through [trading software](https://www.investopedia.com/terms/t/trading-software.asp) programs that automatically record the trades made through a data feed.

A broker usually provides a blotter to its traders as a software program. It includes what security was traded, the time of trade, the quantity and price of sale or purchase, the [ECN market](https://www.investopedia.com/terms/e/ecn.asp) the trade occurred over, and whether it was a buy, sell, or short order.

The blotter also indicates whether a trade was settled appropriately and includes orders that were entered but canceled before being filled. The trader can customize what details are to be shown on the blotter. A broker uses a blotter to keep a record of all transactions in the event that any issue with a trade arises.

## Practical Applications of Trade Blotters

A blotter can be used with or in place of a trading journal by traders who utilize it to improve their [trading techniques](https://www.investopedia.com/terms/t/trading-strategy.asp) and [strategies](https://www.investopedia.com/articles/investing/091714/5-skills-traders-need.asp). At the end of a trading day, traders will usually use the blotter to review how well they performed. They can sort through the blotter to review areas in which they could have performed better, such as timing with entries and/or exits.

Compliance departments and regulators, like the SEC, sort blotters to detect illegal trading. The sorting can be done in numerous ways to reveal any discrepancies in trading.

During an SEC audit, trading blotters are used by firms to show a [record of their trades](https://www.investopedia.com/terms/s/stockrecord.asp) by type of investment. A separate trading blotter will be used for equities, for example, and another one for fixed-income securities, and so on.

If some trades were carried out on stocks on the [watchlist](https://www.investopedia.com/terms/w/watchlist.asp), or restricted trading list, this might indicate [insider trading](https://www.investopedia.com/terms/i/insidertrading.asp). Blotters might also reveal that some portfolio managers are showing favoritism to select clients if the following (or other information) is revealed:

*   Certain client accounts on the blotter frequently have profitable trades.
*   Client accounts have considerably different purchase or sale prices of the same security.
*   Certain types of accounts that command the highest commission fees are prioritized over other accounts in trading.

Furthermore, a portfolio manager involved in an investment strategy that deviates from the strategy disclosed to clients may be found out through a blotter. One example of a red flag is when a supposed buy-and-hold investment portfolio actually has only short-term traded securities.

Any unusual trading activity highlighted on a blotter will be investigated further to determine whether any wrongdoing was carried out.

## Creating a Trade Blotter: An Example Template

Suppose investment firm ABC prepares for an SEC audit by generating trading blotters for each investment type requested. Each sheet, often made with Excel, details the trade as categorized below.

In the case of fixed-income securities, such as bonds, an additional column called "[Accrued Interest](https://www.investopedia.com/terms/a/accruedinterest.asp)" is added to the sheet.

## What Are the Blotters of Original Entry?

All blotters are considered blotters of original entry as they all record new information. The different types of blotters, such as those for the receipt and delivery of securities, for the purchase and sale of securities, and the disbursements of cash, all fall under blotters of original entry.

## What Does a Trade Blotter Do?

A trade blotter simply records the trading activity of an individual and by doing so creates a trading history. Information in a trade blotter includes the client name, the trade name, the settlement date, if the trade was a buy or sell, the CUSIP, the security symbol, the quantity purchased, the unit price, and more.

## What Triggers an Insider Trading Investigation?

A variety of activities can trigger an insider trading investigation by the SEC. This usually occurs around some large news event, such as before a merger or acquisition, where the SEC or other regulatory agencies look for unusual movement in a specific security.

## The Bottom Line

Blotters serve as essential records for tracking and organizing trades across various markets like stocks, bonds, and commodities. They help traders review and analyze their performance and are instrumental for clearing firms and regulatory bodies in detecting illegal trading activities.

Traders can customize blotters to reflect specific details, enhancing their ability to evaluate trading strategies and improve techniques. Be it for personal use or regulatory purposes, maintaining a detailed and accurate blotter is crucial for effective trade management.