Sales and trading is one of the key functions of an investment bank. The term refers to the various activities relating to the buying and selling of securities or other financial instruments. Typically an investment bank will perform these tasks on behalf of itself and its clients.
In market making, traders will buy and sell financial products primarily to facilitate the investment and trading activities of its clients with the goal of making an incremental amount of money on each trade.
The Sales component refers to the investment bank’s sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas and take orders. Sales desks then communicate their clients’ orders to the appropriate trading desks, who can price and execute trades, or structure new products that fit a specific need.
The sales and trading function will also typically employ financial analysts that provide trading strategy advice to external as well as internal clients to support sales and trading. This strategy often affects the way the firm will operate in the market, the direction it would like to take in terms of its proprietary and flow positions, the suggestions salespersons give to clients, as well as the way structurers create new products.
Banks also undertake risk through proprietary trading (though this is subject to regulation within the US and certain European markets), done by a special set of traders who do not interface with clients and through “principal risk”, risk undertaken by a trader after he buys or sells a product to a client and does not hedge his total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet. The necessity for numerical ability in sales and trading has created jobs for physics, math and engineering Ph.D.s who act as quantitative analysts.
- The Investment banking handbook: Chapter 11 – Sales & Trading. John Wiley and Sons, 1988
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.