Investopedia

Continue to Site »

Trading Book

Filed Under » , ,
Dictionary Says

Definition of 'Trading Book'

The portfolio of financial instruments held by a brokerage or bank. Financial instruments in a trading book are purchased or sold to facilitate trading for the institution's customers, to profit from trading spreads between the bid and ask prices, or to hedge against various types of risk. Trading books can range in size from hundreds of thousands of dollars at the smallest institutions to tens of billions at the largest financial institutions. Most institutions employ sophisticated risk metrics to manage and mitigate risk in their trading books.
Investopedia Says

Investopedia explains 'Trading Book'

The trading book has been the source of massive losses for a number of financial institutions in recent years. Such losses often arise because of extremely high degrees of leverage employed by an institution to build the trading book. Another source of trading book losses is disproportionate, highly concentrated wagers on specific securities or market sectors by errant or rogue traders.

Trading book losses can have a cascading, global effect when they hit numerous financial institutions at the same time, such as during the LTCM/Russian debt crisis of 1998, and the Lehman Brothers bankruptcy in 2008. In fact, the global credit crunch and financial crisis of 2008 was significantly attributable to the hundreds of billions of losses sustained by global investment banks in the mortgage-backed securities portfolios held within their trading books.

Articles Of Interest

  1.

    An Overview Of Commodities Trading

    Foresight and careful observation are the keys to trading this market.

  2. Taking a Trip to Trader Town: Exploring the Trader's Chatroom

    Traders don't have to be solitary to be successful--discover how to connect with fellow traders and experts.

  3. Tips For Keeping Your Financial Data Safe Online

    Find out how to protect your personal information from phishers, scammers and thieves.

  4. How To Break Up With Your Bank

    Whether you're moving or have just found a better no-fee plan, find out how to switch banks with ease.

  5. Brokers and Online Trading

    How do you find the right broker for your investment needs? Start by reading our broker tutorial.

  6. Behavioral Bias - Cognitive Vs. Emotional Bias In Investing

    We all have biases. The key to better investing is to identify those biases and create rules to minimize their effect.

  7. Why Your Pension Plan Has Sovereign Debt In It

    One type of security pensions tend to invest in is sovereign debt, or debt issued by a government.

  8. Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.

  9. How To Profit From Risk

    CDs may look safe and attractive but considering most pay a rate that is less than the rate of inflation seniors today risk actually losing money with CDs. We need to be our own money managers ...

  10. Investing In REITs Instead Of Property

    Learn why this one particular REIT is a better investment than holding physical property in your retirement portfolio.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Validation Period

    The amount of time necessary for the premium on an insurance policy to cover the commissions, the cost of investigation, medical exams and other expenses associated with the issuance of the policy.

  2. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.

  3. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  4. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  5. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  6. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.
Trading Center