Career Path & Market Players Flashcards
(25 cards)
What is the Gameplan to succeed in Trading?
- Know the major market players (And where do you belong)
- Know the correct tools
- Understand Raw data
- Have a timetable
What are the different types of Trading Institutions?
- Commercial Banks
- Investment Banks
- Pension funds (Real Money)
- Hedge funds
- Proprietary Trading firms
What are commercial banks?
These are the normal banks which process everyday money transactions. It’s where salaries, wages, saving accounts & deposits are usually done.
They trade money by taking from individuals who place as savings & they lend it to the ones who borrow, & the bank keeps the spread.
Where do the profits which are surplus in the commercial banks head to?
They will be sent to the Investment banking session of that bank.
Normally, how many wings does a normal Bank has?
Usually 2, namely,
- Commercial Banking
- Investment Banking
What’s an Investment Bank?
This is the section of a bank that deals with various processes of raising more money for the bank.
They do so through; Bond issuance, Merges & acquisitions, capital markets & market making.
What is market making?
A process where Investment banks & big Banks in the Interbank do Price discovery in testing new supply & demand levels of prices, and make use of it effectively as per the economic fundamentals in place.
What are some examples of Banks in the Interbank Network?
- Deutsche Bank, Bank of America, Barclays, HBS, UBS etc.
Why as retail traders, we won’t be mimicking the Investment banking approach?
Because:
- There is a lot of risk-taking
- There is a lot of in-depth fundamental research done
- They have advanced algorithms which see order flow
- They deal with big clients (buy-side) , which are the hedge funds, pension funds, prop firms etc.. so a lot of money flow
- They are the main liquidity providers
Why as retail traders, we won’t be mimicking the Comercial banking approach?
Because:
- We are not hosting clients’ services like depositing, savings, & normal current accounts.
What are Pension funds?
These are market participants owning large pools of funds from citizens. They are usually not leveraged, so they invest it in a ratio of 1 to 1 (i.e They take tiny risk amounts)
Why as retail traders, we won’t be mimicking the Pension funds approach?
Because:
- They don’t take enough risks
- They do an in-depth fundamental analysis
- They deal with both liquid & illiquid markets
Why as retail traders, we won’t be mimicking the Commercial banking approach?
Because:
- We are not hosting clients’ services like depositing, savings, & normal current accounts.
What are Hedge funds?
These are among the market players, they do resemble the Pension funds, but it’s just that they can take more risks & they can open short positions.
Why as retail traders, we won’t be mimicking the Hedge funds approach?
Because:
- We don’t have enough money
- They do an in-depth fundamental analysis
- They have raw client data & order flow
- They have advanced algorithms
- They deal with both; liquid & illiquid markets
What are Proprietary trading firms?
These are market players just like Hedge funds, they have huge cash flows (not from clients), they take risks & usually are started as businesses by a group of people to speculate on the markets for profit making.
What are Proprietary trading firms?
These are market players just like Hedge funds, they have huge cash flows (not from clients), and they take risks & usually started as businesses by a group of people to speculate on the markets for profit making.
Why should we mimic PROPRIETARY TRADE FIRMS?
Because we share these traits with them:
- They use electronic platforms to trade from
- They trade liquid markets like Stocks, Treasuries & futures contracts
- They take risks
Does fundamental analysis matter in short-term trading?
No, it doesn’t since, the fundamental analysis best suites long-term trajectories of investors.
Recommended brokers (As of now)?
FXCM, Dukascopy, ICMarkets, Blueberry markets.
How do brokers handle risks?
Through:
- A-Booking your order - This means they take your order & hedge it with the Liquidity providers or Interbank network.
- They B-Book your order - This means, they take the opposite side of your trade. (Since most retail traders fail, they will mostly out win you)
What are futures markets?
These are markets with contracts to be delivered on a future date & at a certain quantity.
What are spot markets?
These are markets with contracts to be delivered upon request (On-the-spot).
What are the biggest markets in the Futures markets?
- Crude Oil
- 10 Year Treasury Bond
- SXP500
- GBPUSD
