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How the Trading Floor Really Works (Bloomberg Financial)

How the Trading Floor Really Works (Bloomberg Financial) [Kindle Edition]

Terri Duhon
5.0 out of 5 stars  See all reviews (13 customer reviews)

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Product Description

Product Description

A detailed look at what really happens in the front office of an investment bank and why

Trading floors have always fascinated people, but few understand the role they play in the world of finance today. Though markets rise and fall every day, the drivers of those are rarely explored. Those who understand the dynamics of trading floors will better understand the dynamics of global financial markets. This book reveals the key players on the floor, their roles and responsibilities, how they serve their clients, and how it all impacts the markets. It also explains important terminology, explains the world of trading both cash and derivatives, and much more.

Includes a foreword by Gillian Tett, author of Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe.

Terri Duhon is a financial market expert who in 2004 founded B&B Structured Finance Ltd, which provides expert consulting and financial markets training . Her time on the trading floor has been documented in the book Fool’s Gold as well as by PBS’s Frontline.

From the Author

Author Q&A by Terri Duhon, author of How the Trading Floor Really Works

Q: Why is what happens on a bank trading floor so opaque?
A: There are two key reasons the trading floor is opaque, sometimes even to those who work on the trading floor itself. The first reason is the language barrier. The world of trading financial products has its own vocabulary as well as style of communication. In effect, the trading floor has its own language. At the same time, each person’s role is very specialized, which makes the lines of communication around the trading floor very tight. Clients speak to a sales person and a sales person speaks to a trader. These two individuals, sales person and trader, generally do not pass that information on to anyone else on the trading floor because the information is often confidential and also because no one else strictly needs it. Thus the person who is putting the trade into the bank’s systems doesn’t even know why the trade was done. Imagine the challenge of the new hire, the smaller corporate client or even the regulator…

Q: What role does the bank trading floor play in financial markets?
A: The trading floor is where banks provide liquidity to financial markets. In other words, it is where banks buy financial products when their clients want to sell and vice versa. It plays a central role in financial markets of always ensuring that there is a price where clients can buy and sell financial products. Of course it may not always be a price clients are happy with, but it is a price. Without a price on financial products, it is hard to determine what value any financial product has. In the bigger picture, everyone operates on the basis of what their assets are worth i.e. if you don’t know how much you are worth, you don’t know how much you can spend and thus money doesn’t go round…

Q: Why do banks need to take risk to play this role?
A: When a bank puts a price where it is prepared to buy and a price where it is prepared to sell a financial product for a client and the client decides to trade on one of those prices, the bank has a position in a financial product. For example, if the bank buys a stock from a client, it now needs to sell that stock to close out the position. If there isn’t another client or another bank immediately interested in buying that stock, the first bank will need to own the stock for a while. In that time period, the price could fall and the bank could lose money when it is finally able to sell. Of course, this is the risk that trading floors are supposed to be taking, which is why banks generally get to buy on the low price and sell on the high price.

Q: Is the risk well managed?
A: Risk management tools are owned and risk management systems are in place in most major banks. But these systems can only do so much on their own. How they are used are based on subjective decision making. Aside from fraud, this is where the mistakes are made. In particular the risk management culture of a bank is what determines how risks are taken. Sadly, a lot of banks aren’t winning prizes for their performance in this space.

Product details

  • Format: Kindle Edition
  • File Size: 2456 KB
  • Print Length: 368 pages
  • Publisher: Bloomberg Press; 1 edition (23 Aug 2012)
  • Sold by: Amazon Media EU S.à r.l.
  • Language: English
  • ASIN: B0092K3P5Q
  • Text-to-Speech: Enabled
  • X-Ray:
  • Average Customer Review: 5.0 out of 5 stars  See all reviews (13 customer reviews)
  • Amazon Bestsellers Rank: #58,872 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Most Helpful Customer Reviews
3 of 3 people found the following review helpful
5.0 out of 5 stars De-mystifing financial markets 10 Nov 2012
Whilst this book does explain the trading floor, I think it has a much broader value. There are a lot of academic texts on finance, but they don't provide practical insight about the organisation, processes, products and language of financial business. You could absorb a dozen of those and still turn up to a bank as a corporate customer, advisor or graduate trainee and be as lost as the next person. There are also a lot of good narrative books describing various events in financial markets, "Too Big to Fail" is a great example. Whilst they equip you with some nuggets of understanding and anecdotal knowledge, they don't systematically explain the opaque interior workings of banks and securities markets or the jargon business is conducted in.

"How the Trading Floor Really Works" is unique because it does lift the lid of opaqueness. It explains the financial products and their economics, the activities, roles and organisations in financial companies (not just the trading floor) and, perhaps most importantly, the language insiders use, which is usually baffling to the non-insider.

I'd recommended it to anyone trying to start a career in finance, but also to anyone in a senior business role who has sat in a meeting with bankers and finance specialists and had that uneasy feeling, when something really important is being discussed, that they don't fully get it but are not in a position to ask "dumb" questions. It's NOT as complicated as finance people make it sound, and investing a few hours in reading this book could give you some very useful knowledge on those occassions when "knowledge is power" and the specialists are playing their knowledge and jargon to its full.....
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4 of 4 people found the following review helpful
5.0 out of 5 stars Does what it says on the tin 6 Nov 2012
You can find lots of books explaining the theory of financial instruments and lots of newspaper articles about the (generally shocking) behaviour of "City traders". None of that tells you how a bank actually works.

With this book, you get
- the theory set out in terms a layman can understand
- an understanding of why we do actually need these banks
- clear explanations of what the different parts of the bank do and how they work with each other and their clients on transactions (including particularly helpful examples of the conversations traders, salesmen, clients etc might have with each other)
- a feel for what the average day is like for the different jobs you could have in a bank and the skills required.
- some anecdotes for a bit of light relief.

If you're interested in the City for any reason, this is the book for you.
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2 of 2 people found the following review helpful
By D.Bain
Having worked in the finance/banking sector for a number of years, I am often approached by training program interns for guidance as to career direction. In many instances, there is a lack of clarity as to the many functions existing within an investment banking framework e.g. from short-term money market products to structured products, including derivatives (equity, credit, interest-rate, etc). It's not until one steps onto a trading floor do you truly appreciate the multitude of products offered by an investment bank, and the roles/responsibilities of each individual necessary to issue/trade these products.

"How the Trading Floor Really Works" is a terrific resource to fulfil this void -- the reader will gain insight into the many products developed, marketed and traded within an investment banking framework, as well as the workings of the various departments behind these products. This easy to read, and technical where necessary, textbook should be a staple in any business curriculum. And, most importantly, this textbook is written by an individual with a significant amount of trading floor experience at various investment banks, in the U.S. as well as Europe.

Students, you must read this textbook before sitting another investment banking interview.
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1 of 1 people found the following review helpful
5.0 out of 5 stars Excellent - clear, concise and educational 11 Nov 2012
Terrific book covering the spectrum of financial markets in language that it easy to assimilate for both lay readers and those already working in the environment. The author has managed to balance both the content and the breadth very well and I would expect this to be of considerable value to many.
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5.0 out of 5 stars Straightforward and informative 6 Oct 2014
This is an interesting book about a subject that most people have a vested interest in making more complicated rather than less.

I work in Finance and when an intern or junior asks for something useful to read, this is on the list alongside the Economist (broad currency), Weekend FT (topical currency), Motley Fool's website (brilliant reference for avoiding howlers) and Prospect magazine (for something higher level to talk about).

There are 3 reasons to include it.
1 clear explanation of the trading floor
2 clear incidental explanation as to how people in that world think and work - far broader than the trading floor
3 it tells a story that owes nothing to fashion

Thoroughly recommended.
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5.0 out of 5 stars A must read! 8 Oct 2014
Format:Hardcover|Verified Purchase
As a student looking to enter the financial world, this book provides a great insight. It is full of information explaining different areas and roles within the trading floor and offers insight I have yet to find in any other book. The explanations are very clear and easy to understand while still going into detail on the area leaving you with a high understanding of what is being explained. This is a must have book for any student interested in a career in finance!
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Most Recent Customer Reviews
5.0 out of 5 stars Authentic, entertaining and informative
I bought the book after I saw the author's appearance in a PBS Frontline documentary (Money, Power and Wall Street). Read more
Published 14 months ago by Danail Irinchev
5.0 out of 5 stars Gets to the point of what actually happens in the financial markets
It's very hard as an outsider (or, sometimes, as an insider) to understand what exactly is the function of a bank trading operation. Read more
Published 16 months ago by RGW
5.0 out of 5 stars Want a job on the trading floor? read this
A message to anyone in the final year of a degree/MBA and who wants to work in and around a trading floor: buy this book. Read more
Published 21 months ago by john owen waller
5.0 out of 5 stars A real break through in the obscure world of traders and the trading...
A real break through in the obscure world of traders and the trading floor that re-elaborate from the ground why finance is so important to our society and at the same time what... Read more
Published 21 months ago by LBellucci
5.0 out of 5 stars Finally - a book that de-mystifies and de-jargonises the trading floor
For most of us, the trading floor is a mysterious place where lots of money is made (by banks) and lost (by clients), risk is sliced, diced, sold and mis-sold to anyone who will... Read more
Published on 1 Oct 2012 by Pokkstar
5.0 out of 5 stars Important reading for students of finance
This book is an excellent introduction to the ways in which financial trades are created and implemented. Read more
Published on 20 Sep 2012 by D. Sanders
5.0 out of 5 stars Must read book for professionals, participants and those with an...
For anyone seeking to read a balanced account of the dynamics and mechanics, which drive our financial services industry, the options have been limited to either overly emotive or... Read more
Published on 19 Sep 2012 by M Deem
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