Month: July 2018

Trading Life Cycle – Trade Attributes

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Hello Guys,

Again let me take an example of buying Apple iPhone through Amazon Marketplace. Once the Order is placed the Amazon will create an Order Ticket that will have below information,

  • PRODUCT Details
  • Date & Time of the Transaction
  • Price Details
  • Quantity
  • Is it a BUY or Sell?
  • The Executive from Amazon who handles this order.
  • Customer Name
  • Seller Details
  • Expected Delivery Dates
  • Updates to the Order if any

Just apply the same logic to Trade Attributes.

Let’s take this example – Bank of Moon (:p) buying 20M valued Equities from Bank of Venus, this trade is placed in the National Stock Exchange India. This is high-level information about the trade, let us break it down.

Nature of the Trade 

Is the Trade between counterparties are

  • Buying or Selling the Shares of one counterparty to another eventually the buyer of the Shares will get the dividend and Seller will increase his Capital to do the business – EQUITY
  • Buying or Selling the assets at the fixed price with some floating or fixed interest as the payout to the buyer of the BOND – FIXED INCOME
  • Buying and Selling the Currency – FOREX Trading

This we call as TRADE TYPE – FXSPOT, FORWARDS, NON DELIVERED FORWARDS are some of it. I will explain each Trade Type in upcoming Posts.

Mandatory Information about the Trade

Every department in the Trade Life Cycle requires information till the Trade Settles.

  • Trade Identifier that was created by Banks internal process per department. This values should be unique.
  • Trade Type – FXSpot
  • Trade Date
  • Execution Time
  • Executed at – Location

Financial Information about the Trade

  • PRICE of the Trade
  • Buy or Sell
  • Product details (USDINR)
  • Under & Accounting Currency details
  • Notional of the Trade (Size of the Trade)

Booking Information if the Trade

  • Who is booking the Trade is it SALESPERSON or the EXECUTING TRADER?
  • Each bank has its own designated area (DESK) to execute the Trade for each Asset Classes
  • BOOK – A trader can trade a Book which is nothing but Record of All Positions held by the Trader.
  • Trader’s information – Trade Name / Location etc.,

COUNTERPARTY INFORMATION of the TRADE

  • Counterparty name 
  • Counterparty Location
  • Settlement Type of Counterparty 
  • Settlement Date

In my next post, I will try to explain multiple Date analogies in the Trading world.

Thanks for reading – please comment and or share it with your friends if you like.

Happy Reading – Asik

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Investment Banking – Trade Life Cyle

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Hello Folks,

My New Website – http://asketltester.com/trading-life-cycle/ please check here for more updates!!

I have not blogged for a couple of years due to the family commitment, now I have time to share my experiences with you all.

okay, let’s go – Many QA working in Investment Banking domain without Business Knowledge (even I was & I am now :p).  So, I myself sneaked into google &  referred few books. Now I am going to blend my day to day experience with the theoretical knowledge.

Let me give you a classic and simple example of how trade happens?

Asik wants to buy an Apple iPhone from Amazon. Here Asik & Amazon are considered as COUNTERPARTIES and the iPhone is considered as PRODUCT that is being traded. Asik places an order by paying $1000 for 1 iPhone. The No of iPhone is nothing but NOTIONAL. The Amazon is an online e-commerce website – this is called the Market Place. So when Asik places an order, he should check the availability and Asik should accept the money that was mentioned in the website here if SIZE & PRICE should match for trade to happen.

After Order is placed, Amazon should accept the ORDER– soon the SIZE & PRICEmatches Amazon will tag that product to Asik, so the TRADE took place.

There are different types of Order & Trade status maintained before the Order gets FILLED (Order Size & price fulfilled and the Order is closed after the Trade completely Fills )

Sample Order & Trade Status – New, Pending New, Pending Cancel, Cancel Request, Cancelled, Filled, Done for the Day (I will explain each status in upcoming posts – Don’t worry :p).

Okay, now why People, Industries, and Investment banks TRADING?

  1. If I want to increase my current then I will go to the market and  BUY STOCK 
  2. I want to get rid of 50% of my stock because I anticipate there will be price Drop – SELL
  3. To make the profit when he/she anticipates there will be the Price spike
  4. To reduce the RISK by considering the future Event.

BUY or SELL is considered as SIDE of the Order/Trade – Buy Trade / Sell Trade or Buy Order / Sell Order.

Who are all the typical Market participants in any Trading activities?

  • PRODUCER or MANUFACTURE
  • CONSUMER or CUSTOMERS
  • SPECULATOR or MARKET WATCHER
  • MARKET MAKERS

WHO IS/ARE PRODUCER?

  • Apple manufacture (producer) has invested 100 $ millions to produce iPhone XI.
  • The entire income of Apple depends on the Total No of units (Size) and price of each unit.
  • Apple can maximize the no of units produced however they can predict little on Price.
  • To avoid the risk, Apple Fixes a Target Price & no of units that will be sold to Apple Dealers

WHO IS/ARE  CONSUMER?

  • Apple wants few thousands of OLED Screens for their new iPhone Model so they are ready to pay more money to Samsung to get the product on time to market.
  • So Samsung reduces his exposure to the OLED Screens to manage the Supply & DemanD

WHO IS/ARE  SPECULATOR?

  • Best Buy Store (Speculator) takes a view on the likely direction of the price change.
  • Best Buys the Apple units on Foward contract when they anticipate the shortage of iPhone units in the US market and supply later.
  • Best Buy sells the Apple units if the anticipated future glut (new products introduced by another vendor)

High-Level Trade Flow

BROKER –> EXCHANGE –> OTC – Overt the Counter.

BROKER 

  • If an Individual wants to buy some EQUITIES from the market, he can’t go directly to the MARKET and BUYSELL the EQUITIES.
  • Because your BUYER or SELLER doesn’t know your creditworthiness
  • You will not have the liquidity of the Equity.

So individuals or small-scale institutional customers will go to Broker for their trading requirements.

EXCHANGE

  • An organized place where anyone can trade any available Products
  • Only EXCHANGES will display BUY & SELL Price of an asset.
  • Makes sure enough liquidity of the Product available in the Exchange
  • Assessing the Counterparty Risk limitations
  • Electronic Traded Exchanges – the Virtual marketplace

Over the Counter – OTC

  • Exchanges are operated for certain hours, if anyone wants to BUY/SELL any products then they have to go to Over the Counter market.
  • Exchanges will not have all the products, because of Product Limitations, one should go to OTC to trade.
  • Only certified people can trade in EXCHANGES, however, OTC any nonmembers also can trade any Products.

Trading Life Cycle will be continued in next Post.

Thanks – Asik