How the Trading Floor Really Works

How the Trading Floor Really Works

Terri Duhon

Language: English

Pages: 368

ISBN: 1119962951

Format: PDF / Kindle (mobi) / ePub

A detailed look at what really happens in the front office of an investment bank and why

Trading floors have always fascinated people, but few understand the role they play in the world of finance today. Though markets rise and fall every day, the drivers of those are rarely explored. Those who understand the dynamics of trading floors will better understand the dynamics of global financial markets. This book reveals the key players on the floor, their roles and responsibilities, how they serve their clients, and how it all impacts the markets. It also explains important terminology, explains the world of trading both cash and derivatives, and much more.

Includes a foreword by Gillian Tett, author of Fool's Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe.

Terri Duhon ( is a financial market expert who in 2004 founded B&B Structured Finance Ltd, which provides expert consulting and financial markets training . Her time on the trading floor has been documented in the book Fool's Gold as well as by PBS's Frontline.












signs multi-year contracts with its clients. Table 2.3 gives an example of a French import/export company’s cashflow profile. TABLE 2.3 Profile of an Import/Export Company’s Cashflow Year Income (earn) Cost (spend) PROFIT if $1 5 h1 PROFIT if $1 5 h2 PROFIT if $1 5 h0.5 1 $100 h50 h50 h150 5 ($100 3 2h$) 2 h50 h0 5 ($100 3 0.5h$) 2 h50 2 $110 h60 h50 h160 2h5 3 $120 h70 h50 h170 2h10 What Role Do Banks Play in Financial Markets? 53 As long as the price of h1 to $1 is one

include:  At what price previous trades were transacted Who the buyers and sellers are  What financial market participants think about the future direction of the price  Financial markets are similar to used-car markets. . . Nowadays, the idea of a financial market isn’t that hard to grasp when everyone is constantly looking on the Internet for the best place to buy different goods and services and negotiating the price as a result. But what does market mean when a client says to a trader

banks that it has a program of buying US treasuries at the moment. PACAM has not disclosed total size but, generally, every time it asks for a market it trades $500 million to $1 billion. These three banks have all had their offers lifted several times by PACAM. As a result, these three banks are always in the interbank market lifting offers of other banks. The price of treasuries is going up as a result. In the United Kingdom, many people refer to Black Wednesday, the 16th of September 1992.

lend. Governments borrow money the same way and for the same reasons that companies do. For example, they borrow to build infrastructure such as roads or they borrow to expand their defensive capabilities. The lender asks the same questions to governments as to companies as to individuals. Why is the money needed and how will it be paid back? Years ago, debt and equity were pieces of paper much like paper money is today. Whoever is holding paper money is the owner of it. It was the same with debt

if it is a 3-year borrowing or a 2-year borrowing but not a 5-year borrowing. If the structuring desk says that on average it is only asked to buy back 10%, then this is more like a standard 5-year bond and Megabank will likely consider that it is borrowing 166 How the Trading Floor Really Works 90% of d166 million rather than rely on the full 100% of the money over the five years. These considerations are slightly different from the considerations for the PACAM treasury trade or the Supermart

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