The Trade Lifecycle: Behind the Scenes of the Trading Process
Retail investors and traders are for the most part blissfully ignorant of how their orders are processed. They buy, sell, and see their account balance either increase or decrease. Or they track open profits and losses. Some days even this seems like far too much information. And, if we are to believe Nicolas Darvas (How I Made $2,000,000 in the Stock Market), it may well be.
For people who work in the capital markets, however, understanding the anatomy of a trade is of vital importance because it sheds light on how banks and trading firms are structured. Where do risk managers fit in? What does the back office do? It is this kind of understanding that Robert Baker aims to impart in The Trade Lifecycle: Behind the Scenes of the Trading Process, 2d ed. (Wiley, 2015).
He pays special attention to the role of technology in the trading progress, which makes perfect sense since it’s an increasingly important part of finance. For instance, as of this past April, of about 33,000 full-time employees at Goldman Sachs, 9,000 of them were engineers and programmers. Goldman had more tech employees than Facebook. As the Business Insider article which reported these figures noted, “The massive on-boarding of tech talent shows just how seriously investment banks regard technology as a means of security and infrastructure.”
For much of the past decade, Crispin Odey has been waiting for inflation to rear its ugly head. The fund manager has been positioned to take advantage of rising prices in his flagship hedge fund, the Odey European Fund, and has been trying to warn his investors about the risks of inflation through his annual Read More
Baker’s book may not be a page turner, but it is a useful outline of how firms develop, arrange, test, approve, monitor, report, and audit trades.