Sales and Trading in Investment Banking – This is the 4th out of the 9 series video article on Investment Banking overview.
- Part 1 – Investment Banking vs Commercial Banking
- Part 2 – Equity Research in an Investment Bank
- Part 3 – What is Asset Management Company
- Part 4 – Sales and Trading
- Part 5 – Private Placements, IPOs and FPOs
- Part 6 – Underwriters and Market Makers
- Part 7 – Mergers and Acquisitions
- Part 8 – Restructuring and Reorganization
- Part 9 – Investment Banking Roles and Responsibilities
1) Investment Banking Video Courses 99 Course Bundle, 500+ hours
2) Business and Financial Modeling (University of Pennysylvania)
3) Wharton Business and Financial Modeling Capstone (University of Pennysylvania)
4) Introduction to Finance: Valuation and Investing (University of Michigan)
5) Valuing Projects and Companies (University of Michigan)
In this, we discuss the following –
- What is Sales & Trading in Investment Banking?
- Sales Department Function in Investment Banking
- Trading Department Function in Investment Banking
Sales and Trading in Investment Banking – Transcript
What is Sales and Trading in Investment Banking?
Equity Research and sales and trading division actually play a very important role and they work in a very integrated fashion so it is equally important for ask to understand what is meant by sales and what is meant buy trading because this is heart and sole of research and trading kind of making money for the investment bank. So Let us now look at how the Sales and trading department within the investment banking firm works. So we are talking about investment bank which is integrated investment bank were there is research department as well as sales and trading department. So what happens is when you know research department comes out with own set off reports the buy and sell on specific stocks you know they talk to the institutional investors or they send their set of equity reports first thing in the morning to the investors. Now the institutional investors may get convinced with the idea of trading on such securities because they may believe on the recommendation of the research department and they may look forward to executing certain trades so say for example a particular Mutual Fund may be interested in buying Microsoft Stock of let’s say to an extend of 10 million Dollars so what happens is that when these large you know deals actually happen 10 Million Dollars, 20 Million Dollars etc. what investment bank must do is they must try to match the buyers with seller without kind of effecting the actual execution price to greater extent. So what I mean here that let say if there is order of 100 Million Dollars on Microsoft i.e. specifically very large order to look at if it’s start getting executed by orders you know obviously the share price will up and up because they would be few sellers however the buying momentum is still on you know it may reflect that Microsoft price may jump by 5% or 10% or you know I am just speculating on that part but yes it may jump. So what an investment bank does in between is that they actually match the buyers and the sellers and try to keep the execution price or the price at which they will buy at a minimum. Now they also actually you know buy and sales securities out of their own account for facilitate the trading of the securities sometimes.
Sales Department in Investment Banking
So let’s look at exactly how the sales department now functions. So we are talking about sales and trading so they are 2 separate mini division within the trading division one think of it as sales department so what happens within the sales department is that you know think of a research division coming out with their calls first thing in the morning before the market starts so what this sales guys may do is they attend something called a morning meeting. Now what does morning meeting is all about is that the research and the head of research as well as sales and the sales staff would kind of attend the meeting in order to understand what is the actual calls for the day. So say for example as I said Microsoft may be a buy so they here the analyst out with respect to why it would be buy or sale the sales job is basically to talk to these institutional investors them and tell them that you particular stock move up or probably it may move down. So the portfolio manager in written may think about you know executing certain trades on the direction of sales from the investor banks so that’s how basically the sales guys actually work. In between the sales guys are also responsible for constant communication between the research analyst as well as the trader from the investment bank so as I said research analyst are someone who prepare the research report buy-sell recommendation the sales staff actually here those recommendation and talk to the portfolio managers and let say if there is 10 million Dollar, 20 Million Dollar trade to be executed the sales staff then passes this trade to the traders from the investment banks so this is trading division of sales and trading part.
Trading Department in Investment Banking
Let’s see you know how trading actually function now what is the objective of trading essentially as I said earlier traders need to execute the trade that is buy or sale the securities on behalf of institutional clients and ensure that the execution price is at the minimal. So they are the one who constantly look at the price charts minute by minute and they are totally using Bloomberg terminals you know they are on the trading terminals you know doing those set of executions. They trade on the behalf of their own institutional clients in many of the traders in fact are kind of you know sector experts some of them specializing technology stocks, the other may be FMCG, Pharma etc. so this is the overall job of you know trader find minimum execution price for the institutional investors. So with this we now have clearly understood what is research and what is sales and trading?