Trading and Brokerage

Question 1

what is the role of trading and brokerage within an investment bank?

Answer 1

This can act as a profit pillar, often when the market of IB deals is down the trading floor can still make lots of money. This can make up for market volatility.

Question 2

what are the main roles of trading and brokerage?

Answer 2

1. proprietary trading: using the banks own money to bet on economy and asset prices.
2. market making: making money on the bid - ask spread, for asset managers, hedge funds and pension funds - less important part of the business now.

Question 3

What are the types of securities typically traded?

Answer 3

Forex
Fixed Income: bonds, credit rating tracks these
government bonds: insurance, pension and mutual funds.
corporate funds: pension and mutuals.
Forwards, Futures, Options and Swaps.
Equity: blue chips 5bn or other: mid 5bn - 2bn and small cap <2bn
blue chip investors: mutual and pension funds
other stocks: retail investors and insurance companies
Commodities

Question 4

What is the purpose of derivatives?

Question 5

What is the difference between proprietary trading and principle investment?

Answer 5

proprietary trading: purchase of stocks, fixed incomes and derivatives in the banks account
principal investments: PE, real estate and loan securitisation. Direct or indirect.

Question 6

What is the role of algorithmic trading?

Answer 6

• potential to outperform manual
• big data is required

algo advantage:
- cost
- accuracy
- efficiency

Models do not perform on the long term more than a few days.