A trading desk is a department within a company or investment bank where securities are sold and purchased to provide market liquidity. Some of the securities traded on trading desks include stocks, bonds, commodities, and currencies.
Trading desks are under the watch of professional managers who are skilled in managing certain classes of securities. They can also be used to structure financial products or identify market opportunities. For each trade executed on their trading desks, firms usually charge clients a commission.
Trading Desk
The trading desk provides support to clients concerning structuring financial products, opportunities, and support agreements between investors and entities. Such desks usually earn commissions as a result of trading activities.
Depending on the type of financial institution, the trading desk may be filled by traders trading for their own proprietary accounts, brokers who act as agents matching buyers and sellers, or some mixture of both.
Traders operating in the financial market usually converge in a room known as the trading floor or trading room. The trading floor is made up of desks that share a large open space. Each desk, formally called a trading desk, specializes in a particular security type or market segment.
Types of Trading Desks
Some of the common types of trading desks include:
Fixed-income Trading Desks
They involve trading bond-based instruments that offer a fixed income to investors. Fixed-income trading desks handle government bonds, corporate bonds, and other bonds and bond-like instruments that pay a yield. Foreign exchange trading desks facilitate trading in currency pairs by acting as market makers. They can also engage in proprietary trading activities.
Equality Trading Desks
The equity trading desk of an investment bank can cover anything from equity sales and trading to equity derivatives trading and exotic options trading. An equity trader is someone who participates in the buying and selling of company shares on the equity market. Similar to someone who invests in the debt capital markets, an equity trader invests in the equity capital markets and exchanges their money for company stocks instead of bonds.
One of the examples of trading on equity is when the Baker Company uses $100,000 of its own cash and a loan of $900,000 to buy a similar factory that also generates a $150,000 annual profit.
Commodity Trading Desks
Commodity trading desks are focused on agricultural products, metals, and other commodities, such as crude oil, gold, and coffee.
Foreign exchange Trading Desks
The traders that work at the forex trading desks act as market makers and handle trading in currency pairs. They might also participate in proprietary trading activities. Traders on the forex trading desk usually work with the spot exchange rates of foreign currencies.
The average foreign exchange trader’s salary in the United States is $200,286 as of January 26, 2023. The range for our most popular foreign exchange trader positions typically falls between $40,449 and $360,124.
Derivatives Trading Desks
Derivatives trading desks specialize in the trading of derivatives, including options, forwards, futures, and swaps. Financial institutions often split derivative trading desks by the type of derivative.
Derivatives are financial contracts, set between two or more parties, that derive their value from an underlying asset, group of assets, or benchmark. A derivative can be traded on an exchange or over the counter.
Benefits of Trading Desks
Apart from facilitating the trading of securities, a trading desk also provides investors with guidance on how to structure financial products, create supporting documents, and identify trading opportunities.
Some of the benefits that the trading desk has to offer to include the following:
- Lower costs.
- Domain expertise.
- Sustained performance.
- Monitoring broker performance
- Advanced technology.
- Gain better insight into user behavior.
FAQ
This section of the article contains some questions and their answers regarding the trading desk.
What does a trading desk do?
A trading desk is a department within a company or investment bank where securities are sold and purchased to provide market liquidity. Some of the securities traded on trading desks include stocks, bonds, commodities, and currencies.
What is the difference between a sales desk and a trading desk?
In sales, the salesperson is the key person who needs to close on behalf of the client. In trading, traders are the key people who execute the transaction. The trader’s department directly needs to coordinate with the sales department. A trader’s job is to execute a buy or sell order in the secondary market.
Do banks have trading desks?
A trading desk is a designated area of a bank, investment firm, or trading floor dedicated to the sale and purchase of specific types of products. Many institutions have separate trading desks for the forex, fixed income, commodities, and equity markets. Some institutions may further subdivide the different markets.
How does a trading desk make money?
The Trade Desk helps agencies and advertisers purchase digital advertising space through its self-service, automated ad-buying platform. It generates revenues by charging its advertising clients a platform fee based on a percentage of total ad spend.
Does the trading desk make a profit?
“The Trade Desk outpaced nearly all areas of digital advertising in 2022, with 32% revenue growth year over year and a record $491 million of revenue in the fourth quarter alone.” This performance was underscored by significant profitability and cash flow.
