Sales and Trading is one of the main functions performed by the investment bank in the country where the investment banking sales team pitch clients for trading ideas and the traders team who perform the activities related to the purchase and sell of the securities and the other financial instruments in the market for itself or on behalf of its clients.
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
If you want to learn Mergers and Acquisitions professionally, then you may want to look at 25+ video hours of M&A (Mergers and Acquisitions) Training
In this, we discuss the following –
- What is Sales and 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 us to understand what is meant by sales and what is meant by trading because this is heart and soul 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 an investment bank which is an integrated investment bank where there is a research department as well as a sales and trading department. So what happens is when you know the research department comes out with its 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 extent 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 affecting 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 facilitating 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 sales and 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 guy 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 buy or sell the sales and trading job is basically to talk to these institutional investors them and tell them that your particular stock moves 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 investment 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 buying or sell the securities on behalf of institutional clients and ensure that the execution price is at the minimal. So they are the one who constantly looks 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 sales and trading job, 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?