How the Trading Floor Really Works
by Duhon, TerriEdition: 1st
Format: Hardcover
Pub. Date: 2012-10-22
Publisher(s): Bloomberg Press
Other versions by this Author
-
This Item Qualifies for Free Shipping!*
*Excludes marketplace orders.
List Price: $64.96
Buy New
Arriving Soon. Will ship when available.
$61.87
Rent Textbook
Select for Price
Used Textbook
We're Sorry
Sold Out
eTextbook
We're Sorry
Not Available
How Marketplace Works:
- This item is offered by an independent seller and not shipped from our warehouse
- Item details like edition and cover design may differ from our description; see seller's comments before ordering.
- Sellers much confirm and ship within two business days; otherwise, the order will be cancelled and refunded.
- Marketplace purchases cannot be returned to eCampus.com. Contact the seller directly for inquiries; if no response within two days, contact customer service.
- Additional shipping costs apply to Marketplace purchases. Review shipping costs at checkout.
Summary
Is the trading floor really the Wild West? Do they have a purpose or are they relics of the past in the brave new world of finance post-crisis? Why isn't all financial trading done on an exchange? Trading floors have always fascinated people, but few understand the role they play in the world of finance today. We watch financial markets every day and generally focus simply on whether markets go up or down. For some market participants this is sufficient, but most would benefit from more color. Unfortunately the drivers of these moves are rarely explored in the standard media. The dynamics of the trading floor are a little microcosm of the global markets. Understand these dynamics and better understand the dynamics of global financial markets. Who are the key players on the trading floor and what are their roles and responsibilities? Who are the clients and do they really need the services the trading floor provides? How does the client understand their risk and know when the price is right? How does all this impact global financial markets? Trading floors also determine how risk decisions are made and how risk gets managed in a major financial institution. This is crucial to understanding the health of the financial system globally. "Where is the risk?" and "How is it managed?" seem to be the questions most often asked about finance institutions. Interestingly, a better understanding of how the trading floor works, and the questions will generally turn into "What is the risk?" and "How is it measured?" Part of the challenge of understanding the trading floor is wading through the terminology. Bid-offer, market-maker, upfront, hedging, real money, going short, counterparty credit risk, liquidity etc at least are real words. But V@R, IRS, repo, ROC, CDS, PV, TVM, CVA etc aren't. This creates a language barrier that is overwhelming for most. This book will decipher and translate the world of trading both cash and derivative products. Last of all, if you've ever wanted to know "who is the smartest person on the trading floor", "why you are only as good as your last trade", or "what risk is never considered but always there", this is the book to read.
Author Biography
Terri Duhon is a financial market expert with almost 18 years of experience in financial markets. She graduated from MIT in Math in 1994 and immediately joined JPMorgan as a derivatives trader on Wall Street. While at JPMorgan, she was instrumental in developing the credit derivative market globally. Her time on the trading floor has been documented in the book Fool’s Gold as well as by PBS’s Frontline. In 2004, after 10 years on the trading floor in New York and London, Terri founded B&B Structured Finance Ltd, which provides expert consulting and financial markets training. She has led expert witness teams for financial litigation in both NY and London, assisted asset managers in assessing financial market risks as well as given hundreds of training programs globally for thousands of participants. She is also retained by a major financial regulator as an expert consultant on financial markets. Terri gives university lectures, speaks at conferences and is often quoted in the financial press. She sits on the board of two charities and lives with her family in Oxford, England.
Table of Contents
Foreword xi
Preface xiii
Why I Wrote this Book xiii
What this Book Does and Does Not Do xiv
Who this Book Is For xiv
Finally, Some Key People in the Process of Writing this Book xv
All Feedback Welcome! xv
Women on the Trading Floor . . . Really? xvii
CHAPTER 1
What Are Financial Markets? 1
Debt Markets 4
Equity Markets 11
Other Asset Classes 21
Derivative Markets 22
Conclusion 26
Discussion Questions 27
CHAPTER 2
What Role Do Banks Play in Financial Markets? 29
What It Means to Provide Liquidity 31
Central Market Platforms 37
Who Are the Clients and What Are They Doing? 45
Conclusion 54
Discussion Questions 56
CHAPTER 3
Which Part of the Bank Are We Talking About? 57
Corporate Finance 60
Global Financial Markets 63
Where Are these Trading Floors? 73
The Trading Floor’s Relationship with Clients 75
The Loan Portfolio and the Funding Department 76
Conclusion 80
Discussion Questions 81
CHAPTER 4
What Does It Mean to Trade? 83
PACAM Treasury Trade 85
Supermart Interest Rate Swap Trade 94
A Structured Equity Product 108
Conclusion 118
Discussion Questions 119
CHAPTER 5
What Is the Market and Why Does It Move? 121
What Is the Market? 123
Price Fundamentals: Macroeconomics 128
Price Fundamentals: Company Specific News 135
Supply and Demand 140
Conclusion 142
Discussion Questions 143
CHAPTER 6
How Do Traders Make a Market? 145
PACAM Treasury Trade 148
Supermart Interest Rate Swap Trade 158
Equity Structured Product Trade 163
A Typical Trader Day 166
Conclusion 168
Discussion Questions 169
CHAPTER 7
How Is Proprietary Trading Different
from Market Making? 171
Proprietary Trading Desk Overview 173
Proprietary Desk Liquidity 176
How Market Makers Are Similar to Proprietary Traders 180
Trading Book Accounting 186
Trader Capital Allocation 187
Conclusion 188
Discussion Questions 189
CHAPTER 8
What Is the Relationship Between Sales and Trading? 191
A Day in the Life 195
Know Your Client 199
Managing the Client Relationship 201
Sales Person Stereotypes 209
Conclusion 211
Discussion Questions 211
CHAPTER 9
What Role Does the Research Analyst Play? 213
The Role of a Credit or Equity Analyst 215
Conflict of Interest 221
The Economists and Strategists 222
Desk Analysts 225
Conclusion 226
Discussion Questions 227
CHAPTER 10
What’s So Special About Trading Derivatives? 229
Bond Intermediation 231
Derivative Intermediation 234
Counterparty Credit Risk 241
Illiquid Derivatives Intermediation 246
Conclusion 248
Discussion Questions 249
CHAPTER 11
Where Does Structuring Fit? 251
The Deal Origination 252
Deal Negotiation 255
Deal Closing 260
Conclusion 263
Discussion Questions 264
CHAPTER 12
Where Are the Quants? 265
Pricing Models and What They Do 266
Risk Management Models and What They Do 271
Financial Market Evolution 274
Quants’ Relationship with the Trading Floor 275
Conclusion 277
Discussion Questions 278
CHAPTER 13
What Are the Risks? 279
Market Risk 281
Credit Risk 287
Other Risk 292
Conclusion 295
Discussion Questions 296
CHAPTER 14
How Do We Manage These Risks? 297
New Product Approval Process 299
Market Risk Limits 304
Credit Risk Limits 307
Learn from Experience 309
Conclusion 312
Discussion Questions 313
Epilogue 315
Glossary 317
Index 341
An electronic version of this book is available through VitalSource.
This book is viewable on PC, Mac, iPhone, iPad, iPod Touch, and most smartphones.
By purchasing, you will be able to view this book online, as well as download it, for the chosen number of days.
Digital License
You are licensing a digital product for a set duration. Durations are set forth in the product description, with "Lifetime" typically meaning five (5) years of online access and permanent download to a supported device. All licenses are non-transferable.
More details can be found here.
A downloadable version of this book is available through the eCampus Reader or compatible Adobe readers.
Applications are available on iOS, Android, PC, Mac, and Windows Mobile platforms.
Please view the compatibility matrix prior to purchase.