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How the Trading Floor Really Works

Book Description

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 (www.terriduhon.co) 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.

Table of Contents

  1. Cover
  2. Contents
  3. Title
  4. Copyright
  5. Dedication
  6. Foreword
  7. Preface
  8. Women on the Trading Floor . . . Really?
  9. Chapter 1: What Are Financial Markets?
    1. Debt Markets
    2. Equity Markets
    3. Other Asset Classes
    4. Derivative Markets
    5. Conclusion
    6. Discussion Questions
  10. Chapter 2: What Role Do Banks Play in Financial Markets?
    1. What It Means to Provide Liquidity
    2. Central Market Platforms
    3. Who Are the Clients and What Are They Doing?
    4. Conclusion
    5. Discussion Questions
  11. Chapter 3: Which Part of the Bank Are We Talking About?
    1. Corporate Finance
    2. Global Financial Markets
    3. Where Are these Trading Floors?
    4. The Trading Floor’s Relationship with Clients
    5. The Loan Portfolio and the Funding Department
    6. Conclusion
    7. Discussion Questions
  12. Chapter 4: What Does It Mean to Trade?
    1. PACAM Treasury Trade
    2. Supermart Interest Rate Swap Trade
    3. A Structured Equity Product
    4. Conclusion
    5. Discussion Questions
  13. Chapter 5: What Is the Market and Why Does It Move?
    1. What Is the Market?
    2. Price Fundamentals: Macroeconomics
    3. Price Fundamentals: Company Specific News
    4. Supply and Demand
    5. Conclusion
    6. Discussion Questions
  14. Chapter 6: How Do Traders Make a Market?
    1. PACAM Treasury Trade
    2. Supermart Interest Rate Swap Trade
    3. Equity Structured Product Trade
    4. A Typical Trader Day
    5. Conclusion
    6. Discussion Questions
  15. Chapter 7: How Is Proprietary Trading Different from Market Making?
    1. Proprietary Trading Desk Overview
    2. Proprietary Desk Liquidity
    3. How Market Makers Are Similar to Proprietary Traders
    4. Trading Book Accounting
    5. Trader Capital Allocation
    6. Conclusion
    7. Discussion Questions
  16. Chapter 8: What Is the Relationship Between Sales and Trading?
    1. A Day in the Life
    2. Know Your Client
    3. Managing the Client Relationship
    4. Sales Person Stereotypes
    5. Conclusion
    6. Discussion Questions
  17. Chapter 9: What Role Does the Research Analyst Play?
    1. The Role of a Credit or Equity Analyst
    2. Conflict of Interest
    3. The Economists and Strategists
    4. Desk Analysts
    5. Conclusion
    6. Discussion Questions
  18. Chapter 10: What’s So Special About Trading Derivatives?
    1. Bond Intermediation
    2. Derivative Intermediation
    3. Counterparty Credit Risk
    4. Illiquid Derivatives Intermediation
    5. Conclusion
    6. Discussion Questions
  19. Chapter 11: Where Does Structuring Fit?
    1. The Deal Origination
    2. Deal Negotiation
    3. Deal Closing
    4. Conclusion
    5. Discussion Questions
  20. Chapter 12: Where Are the Quants?
    1. Pricing Models and What They Do
    2. Risk Management Models and What They Do
    3. Financial Market Evolution
    4. Quants’ Relationship with the Trading Floor
    5. Conclusion
    6. Discussion Questions
  21. Chapter 13: What Are the Risks?
    1. Market Risk
    2. Credit Risk
    3. Other Risk
    4. Conclusion
    5. Discussion Questions
  22. Chapter 14: How Do We Manage These Risks?
    1. New Product Approval Process
    2. Market Risk Limits
    3. Credit Risk Limits
    4. Learn from Experience
    5. Conclusion
    6. Discussion Questions
  23. Epilogue
  24. Glossary
  25. Index