Position management is as the name suggests, managing your position. Let us take a securities scenario. We buy a stock using a securities account. In most of the cases we don't maintain the units in the same account. We transfer it to a different account. This is just one of the various position management scenarios in securities. There are corporate actions. But all these can be configured directly as SAP takes care of almost every possible scenario. The most important part of postion management is valuation.
What is valuation and why valuation?
Valution is the process of assessing or valuing your assets which are any stocks which you hold in the case of securities or fixed deposits in the case of money market etc. The main purpose of valuation is assessing these and bringing them to today's value. For e.g. Suppose we buy a stock for $100 / unit. After a month its price goes down to $50 / unit. But our asset will show the value of the stock as still $100 which is wrong because we can't realize $100 when we sell it in market. Hence we do valuation and bring the value of the stock to $50 / unit and account the remaining $50 as Valuation loss. In the same way, when a foriegn currency is used, then it is widely fluctuating, and hence we consider foreign exchange loss also in that case.
But the valuation procedure difffers from company to company and also from country to country. Some may bring change the value only when there is drop in prices and when there is an increase in price, there is no change. This is based on matching concept where all loss are accounted but gain is not. Similarly there are many reasons for a company to use multiple valuation procedures based on their requirements. Hence for this purpose, from ECC6.0 onwards, SAP has come up with concept known as parallel valuation area concept. A new but very effective concept, which is based mainly for multiple accounting principles. Here we define a valuation area and assign a valuation class. When we make a purchase itself, we specify how that asset or those units have to be valauted by specifying the valuation class. We can assign various position management procedures for the combination of valuation area and valuation class. We can valuate the same postition based on various principle, but have only 1 principle for accounting purposes. Thus the other procedures are used for reporting purposes only.