Trading Desk

What is a 'Trading Desk'

A trading desk where transactions for buying and selling securities occur. Trading desks are found in most organizations involved in trading investment instruments, such as equities, fixed income securities, futures, commodities, and currencies. A trading desk provides trades with access to instantaneous trade executions. Also known as a dealing desk.

BREAKING DOWN 'Trading Desk'

Trading desks are where buying and selling of securities occurs on the ground floor. Before the 1970s, many banks split their capital markets business into many different department across several sites. These institutions began consolidating these departments in the 1970s with the launch of the NASDAQ, which requires an equity trading desk on their premises. Many asset managers outsource their trading desks to these larger institutions.

Trading desks are manned by licensed traders who specialize in a given investment type, such as equities or commodities. These traders primarily use electronic trading systems, phones, and market makers to identify the best prices for their clients. In addition to trading activities, trading desks may also help clients with structuring financial products, watching for opportunities, or supporting agreements between companies and investors.

Trading desks generate an income by charging a commission on trades placed through it. For example, a hedge fund may deal through an equity trading desk at an investment bank and pay a modest fee for each trade. In some cases, brokers may operate their own trading desk by being the counterparty for their client’s trades. These trades may never touch the interbank market and may stay within the confines of the broker’s own liquidity pool.

Types of Trading Desks

There are many different types of trading desks depending on the security being traded. Often times, these desks are separated and may be located at certain central exchanges.

The most common trading desks include:

  • Equity trading desks handle everything from equity trading to exotic options trading.
  • Fixed income trading desks handle government bonds, corporate bonds, and other bonds and bond-like instruments that pay a yield.
  • Foreign exchange trading desks trade currencies in pairs by purchasing one currency with another to capitalize on the differential.
  • Commodity trading desks are focused on agricultural, metal, and other commodities, such as crude oil, gold, and coffee.

Many brokers also offer trading desks for their clients, especially in the foreign exchange market and equity day trading market. With the ability to instantly execute trades, these brokers set themselves apart from other brokers acting as intermediaries.

The Bottom Line

Trading desks are where buying and selling of securities occurs on the ground floor and provide traders with near-instant execution of trades. There are many different types of trading desks, depending on the type of securities being traded, but most large financial institutions have their own trading desks in place to assist their internal teams and external clients in placing orders.