Brief Trading and Brokerage

Question 1

Proprietary trading

Answer 1

Purchasing and selling securities by using <b>own money</b>.

Question 2

Brokerage

Answer 2

Buying securities <b>on behalf of its client</b>.

Question 3

Why is trading critical for the profitability?

Answer 3

There are very few costs related to the revenues that it generates.

Investment banks know how financial markets function and what type of trades are likely to be profitable in the short term.

<b>Research department</b> provide valuable insights and support the investment decisions of the bank.

Question 4

Market-Making technique

Answer 4

Buying a small number of securities and being ready to sell these securities to customers when they place an order

Question 5

Liquidity

Answer 5

Ability of an asset to be traded quickly without changing the market price.

Investment bank support the trading of less liquid securities by applying a <b>market-making technique</b>.

Question 6

What financial instruments do investment banks trade?

Answer 6

<b>1️⃣ Shares</b>
<b>2️⃣ Bonds</b>
<b>3️⃣ Derivative Contracts</b>: ▪️ Hedging purposes
▪️ Speculative reasons

Examples of derivative instruments:
Forwards, Futures, Options, Swaps