Where does the revenue come from?
Trading noob here so bare with me.
Do sales and trading departments at BBs make their money from:
a) executing transactions for clients and taking a percentage (e.g. client asks to buy stock A, S&T buy for price X and charge them X + a few bips)
b) client asks S&T to buy stock A, S&T quote him price X (includes risk), and S&T tries to get it for a lower price, keeping (or absorbing) the difference
c) combination of the two
d) neither of the two
Thanks
combo of the 2... a is an agency trading where shares are purchased on behalf of the client through an exchange and client is charged a commish (depending on stock liquidity and size) b is an example of a principal trade where bank can either take the risk or in an ideal situation, already have a buyer and seller lined up and capture the spread.
I'm sure there are many roads to Rome, but this is the most common one I've seen: A) Client says; Buy 10k AA @ 14.95 high. After the order is executed, lets say 14.93, add som points (vary if you're trading through ie. Goldman Sachs' platform Reddi or Fidessa) and the client gets their order. Also a fee (lets say 0.5% for some clients) is added.
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