In a simple term, the trading desk is where the process of buying and selling securities happen. This process is important to provide market liquidity. Some people also call it a dealing desk.
We can find this in many companies that facilitate trade executions in various assets, like equities, futures, commodities, currencies, and fixed income securities.
Defining Trading Desk
Traders who participate in financial markets gather in a room known as the trading room or trading floor. These rooms have desks that share a big space. Formally, each of those desks called a trading desk and they specialize in a market segment and security types.
Before the 1970s, banks divide their capital market business into various departments across the region. After the launch of the NASDAQ, those institutions started to consolidate the departments. That requires the investment firms to own equity trading desks. As for today, many asset managers outsource their trading desks to these larger institutions.
The person who stays in those trading desks is licensed traders specialized in a specific investment type, like equity or commodities. Besides, these people use electronic trading systems and market makers to find the best price for their clients.
These people on that trading desks get the client’s orders from the sales desk. Meanwhile, sales desks are in charge of giving suggestions the trading ideas to the institutional and investors with high net worth.
Additionally, trading desks also help clients to structure the financial products, watch the opportunities, and support the agreement between companies and investors.
Trading desks get their income from the commission they charge on the trades they made. There are various types of trading desks according to the security they trade. Most of the time, these desks are separated or located at certain central exchanges.
The Types
Here are the most common trading desks that we have.
Equity trading desks
They trade everything from equity trading to exotic options trading.
Foreign exchange trading desks
They help the trades in currency pairs through acting as the market makers. They also can involve in propriety trading.
Fixed-income trading desk
These desks handle the trades involving government bonds, corporate bonds or another bond-like instrument.
Commodity trading desks
These desk focus on agricultural products, metals, and other commodities, like gold, coffee, and crude oil.