Netting is a financial process used to reduce the number of transactions between parties by offsetting mutual obligations. For example, if two companies owe each other money, they can calculate the net amount owed and settle only the difference. This simplifies payments and reduces transaction costs. In the context of trading, netting can also refer to the practice of consolidating multiple trades into a single transaction. This is common in markets like foreign exchange or derivatives, where traders may have numerous positions. By netting, they can manage risk more effectively and streamline their operations.