S&T desks and inventory risk
Which S&T desks (which asset classes) have the most inventory risk and therefore have more ability to trade and not just live off commissions?
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interest rates (Swaps, Swaptions, Governments, FX) - these desks tend have the largest risk and P&L allocation.
Some banks still have large mortgage trading operations that take HUGE risk.
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what do you consider "substantial risk"? Serious question.
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MBS desks go long bonds dude...I think you don’t quite grasp how institutional trading works. You have two kinds of trading: secondary, and primary. Lots of times secondary traders will go long any inventory they think is a good value, and retail will pick off eventually. So they throw those bonds in trading, and will be long until the bonds are picked off, or inventory ages past 60 days or whatever capital commitment committee says and you have to liquidate. Primary is just new issues. So for a MBS desk this would be literal securitization. Any bonds left over traders go long until the street, institutional, or retail pick them off. In both cases the traders take on substantial risk. If you’re long even $10MM and you get hit with a 10 bps cut you’re feeling it (I guess unless you deal in pure floaters). Now I’m not a MBS trader, but a bond is a bond and sell trading isn’t as complex as you’d think. And most of the time sell side traders aren’t just doing crosses (the latter trade to which you were referring).
the banks don't have that kind of machine gun rapid fire customer flow like they used to...so the banks take the other side of pretty much every trade (so, they warehouse the positions), and then figure out how to get out afterwards. Sometimes that means hedging in the inter-dealer broker screens (hedge 9yr notes with 10yr notes....and then worry about the curve exposure and THEN try to get out of the actual 9yr notes)..sometimes it means hedging into a curve or butterfly trade if there is no liquidity in the specific security that your customer gave you a position in.
Bank traders in all of the desks i mentioned can make or lose on avg 5mm/day easily based on customer flow and market movement...for some desks that number is even higher (10 years ago, that number was MUCH higher). Most traders don't have the risk limits to make/lose 5m/day, so they try to not let their exposure get that big....but sometimes it happens from customer flow and there is nothing you can do about it. The avg bank trader P&L will be +/- 500k/day
Commodities (at a couple of banks.... the numbers are dwindling)
This is an extremely uninformed opinion.
Look at a companies 10q/k and see what divisions are making the most money...simple
and commodities franchises have absolutely nothing on literally any other revenue generating business of the company..except for maybe Macquarie..holy shit this year you seen them revenue numbers from commons!
How do you find the companies 10q/k and is it broken down by product class?
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