Investment Banking Discussions (Part 3) – The Aspect of Trading
January 26, 2013 5 Comments
Trading also provides a vital role for the Investment Bank.
This article is the third of five editorials in a series entitled “Investment Banking Discussions” that I will compose in an effort to identify, explain, and/or discuss aspects of the subject of Investment Banking.
Of course, I would encourage all questions, insights, thoughts, and commentary as appropriate.
The purpose and goal of this editorial is to discuss and explain:
- What is Investment Banking Trading?
- Typical Activities of an Investment Banking Trader
- Closing Thoughts
What is Investment Banking Trading?
In simplistic terms, Investment Banking Trading is the process of buying and selling products.
Typical Activities of an Investment Banking Trader
Many of the commonplace activities of an Investment Banking Trader include:
- Facilitating the purchase and selling of stocks; bonds; and/or securities – either by carrying an inventory of securities for sale or by executing a given trade for a client;
- Dealing with transactions (large or small) – providing liquidity (the ability to buy and sell securities) for a market. Often times, this is referred to as “Making a Market”;
Traders make money by purchasing securities and selling them at a slightly higher price. This price differential is called the “Bid-Ask Spread”.
Price fluctuations occur with respect to what is happening in the market – both in terms of the individual product and the wider economy. Trading is vital to the world economy, and it can be used to protect businesses and governments against such drastic price changes (such as the price of oil). Without trading, many companies and countries simply could not function.