Career Path & Market Players

Question 1

What is the Gameplan to succeed in Trading?

Answer 1

• Know the major market players (And where do you belong)
• Know the correct tools
• Understand Raw data
• Have a timetable

Question 2

What are the different types of Trading Institutions?

Answer 2

• Commercial Banks
• Investment Banks
• Pension funds (Real Money)
• Hedge funds
• Proprietary Trading firms

Question 3

What are commercial banks?

Answer 3

These are the normal banks which process everyday money transactions. It’s where salaries, wages, saving accounts & deposits are usually done.

They trade money by taking from individuals who place as savings & they lend it to the ones who borrow, & the bank keeps the spread.

Question 4

Where do the profits which are surplus in the commercial banks head to?

Answer 4

They will be sent to the Investment banking session of that bank.

Question 5

Normally, how many wings does a normal Bank has?

Answer 5

Usually 2, namely,
- Commercial Banking
- Investment Banking

Question 6

What’s an Investment Bank?

Answer 6

This is the section of a bank that deals with various processes of raising more money for the bank.

They do so through; Bond issuance, Merges & acquisitions, capital markets & market making.

Question 7

What is market making?

Answer 7

A process where Investment banks & big Banks in the Interbank do Price discovery in testing new supply & demand levels of prices, and make use of it effectively as per the economic fundamentals in place.

Question 8

What are some examples of Banks in the Interbank Network?

Answer 8

• Deutsche Bank, Bank of America, Barclays, HBS, UBS etc.

Question 9

Why as retail traders, we won’t be mimicking the Investment banking approach?

Answer 9

Because:
- There is a lot of risk-taking
- There is a lot of in-depth fundamental research done
- They have advanced algorithms which see order flow
- They deal with big clients (buy-side) , which are the hedge funds, pension funds, prop firms etc.. so a lot of money flow
- They are the main liquidity providers

Question 10

Why as retail traders, we won’t be mimicking the Comercial banking approach?

Answer 10

Because:
- We are not hosting clients’ services like depositing, savings, & normal current accounts.

Question 11

What are Pension funds?

Answer 11

These are market participants owning large pools of funds from citizens. They are usually not leveraged, so they invest it in a ratio of 1 to 1 (i.e They take tiny risk amounts)

Question 12

Why as retail traders, we won’t be mimicking the Pension funds approach?

Answer 12

Because:
- They don’t take enough risks
- They do an in-depth fundamental analysis
- They deal with both liquid & illiquid markets

Question 13

Why as retail traders, we won’t be mimicking the Commercial banking approach?

Answer 13

Because:
- We are not hosting clients’ services like depositing, savings, & normal current accounts.

Question 14

What are Hedge funds?

Answer 14

These are among the market players, they do resemble the Pension funds, but it’s just that they can take more risks & they can open short positions.

Question 15

Why as retail traders, we won’t be mimicking the Hedge funds approach?

Answer 15

Because:
- We don’t have enough money
- They do an in-depth fundamental analysis
- They have raw client data & order flow
- They have advanced algorithms
- They deal with both; liquid & illiquid markets

Question 16

What are Proprietary trading firms?

Answer 16

These are market players just like Hedge funds, they have huge cash flows (not from clients), they take risks & usually are started as businesses by a group of people to speculate on the markets for profit making.

Question 17

What are Proprietary trading firms?

Answer 17

These are market players just like Hedge funds, they have huge cash flows (not from clients), and they take risks & usually started as businesses by a group of people to speculate on the markets for profit making.

Question 18

Why should we mimic PROPRIETARY TRADE FIRMS?

Answer 18

Because we share these traits with them:
- They use electronic platforms to trade from
- They trade liquid markets like Stocks, Treasuries & futures contracts
- They take risks

Question 19

Does fundamental analysis matter in short-term trading?

Answer 19

No, it doesn’t since, the fundamental analysis best suites long-term trajectories of investors.

Question 20

Recommended brokers (As of now)?

Answer 20

FXCM, Dukascopy, ICMarkets, Blueberry markets.

Question 21

How do brokers handle risks?

Answer 21

Through:
- A-Booking your order - This means they take your order & hedge it with the Liquidity providers or Interbank network.

• They B-Book your order - This means, they take the opposite side of your trade. (Since most retail traders fail, they will mostly out win you)

Question 22

What are futures markets?

Answer 22

These are markets with contracts to be delivered on a future date & at a certain quantity.

Question 23

What are spot markets?

Answer 23

These are markets with contracts to be delivered upon request (On-the-spot).

Question 24

What are the biggest markets in the Futures markets?

Answer 24

• Crude Oil
• 10 Year Treasury Bond
• SXP500
• GBPUSD

Question 25

What are the key characteristics of futures markets?

Answer 25

• They are regulated by a central exchange
• They are transparent
• Even the Interbank, do hedge their risks in the futures markets
• Every market player gets an equal treatment