Trading Desk Definition

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Trading Desk Definition

What Is a Trading Desk?

A trading desk is a physical location where transactions for the purchase and sale of securities take place. Depending on the kind of financial institution, traders trading for their own personal account, brokers who operate as agents connecting buyers and sellers, or a combination of the two may staff the trading desk.

Most financial institutions have trading desks that facilitate deal executions in markets such as stocks, fixed income instruments, futures, commodities, and currencies. These facilities are critical in terms of market liquidity.

A trading desk may also be known as a dealing desk.

Key Takeaways

  • A trading desk is a defined area inside a financial business where trading occurs.
  • Professionals occupy trading desks, ranging from proprietary traders to agency-only brokers.
  • Trading desks are often classified according to asset class or securities type, such as those that specialize in stocks, fixed income, currencies, commodities, and/or derivatives.

Understanding Trading Desks

Traders in financial markets often congregate in an area known as the trading floor or trading room. The trading floor is made up of desks that are spread out over a vast open expanse. Each desk, officially known as a trading desk, specialized in a certain securities or market sector. Within a financial institution, trading desks are where securities are bought and sold.

Prior to the 1970s, many banks divided their capital markets activity into several divisions spread over multiple locations. Following the creation of the NASDAQ, which obliged all investment companies to maintain stock trading desks, major institutions started integrating these departments in the 1970s. Many asset managers now outsource their trading desks to bigger organizations.

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Trading desks are staffed by professional traders who specialize in one sort of investment, such as stocks or commodities. To get the best rates for their customers, these traders usually employ computerized trading systems and market makers.

Trading desk employees take orders from the sales desk, which is in charge of recommending trading ideas to institutional and high-net-worth customers. Trading desks assist customers with the development of financial products, the monitoring of opportunities, and the support of agreements between corporations and investors, in addition to trading operations.

How Trading Desks Work

Trading desks make money by charging a fee on deals they execute. A hedge fund, for example, may deal via an equities trading desk of an investment bank and pay a small charge for each transaction. Brokers may run their own trading desk in certain situations by acting as the counterparty for their clients’ transactions. These deals may never enter the interbank market and instead remain inside the broker’s internal liquidity pool.

Depending on the securities being traded, there are several kinds of trading desks. These desks are often segregated and may be placed at certain central exchanges.

Types of Trading Desks

Some common trading desks include:

  • Equity trading desks deal with anything from stocks to exotic options.
  • Government bonds, corporate bonds, and other bonds and bond-like securities that pay a yield are all handled by fixed-income trading desks.
  • Foreign exchange trading desks operate as market makers to enable trading in currency pairings. They may also participate in proprietary trading.
  • Commodity trading desks specialize in agricultural commodities, metals, and other commodities including crude oil, gold, and coffee.
  • Options, futures, forwards, and swaps are examples of derivatives traded by derivatives trading desks.
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Each of these sectors may be split further. For example, fixed income is a wide category that includes anything from ultra-safe US Treasury bonds to ultra-risky, low-grade business bonds, sometimes known as junk bonds. Larger investment banks may split their trading desks into specific groups within these broad areas.

Many brokers also provide trading desks for their customers, particularly in the forex and equities day trading markets. These brokers distinguish themselves from other brokers who function as middlemen by being able to execute deals immediately. Most big financial institutions have their own trading desks to help internal teams and external customers with order placement.

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