What are Sales and Trading?

Sales and trading are one of the main functions of the investment bank in the country where the investment banking team related to sales offers clients trading ideas. On the other hand, the traders’ team performs the activities related to the purchase and sale of the securities and the other financial instruments in the market for itself or on behalf of its clients.

It is the fourth of nine video articles on investment banking overview.

  • Part 1 – Investment Banking vs. Commercial BankingPart 2 – Equity ResearchPart 3 – What is Asset Management CompanyPart 4 – Sales and TradingPart 5 – Private PlacementsPart 6 – UnderwritersPart 7 – Mergers and AcquisitionsPart 8 – Restructuring and ReorganizationPart 9 – Investment Banking Responsibilities

In this, we discuss the following –

  • What are sales and trading in investment banking?Sales department functions in investment bankingTrading department functions in investment banking

Sales and Trading Transcript

What are Sales and Trading in Investment Banking?

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Sales and Trading in Investment Banking (wallstreetmojo.com)

Key Takeaways

  • Sales and trading are one of the principal investment banking functions in the country, where the investment banking team concerning sales provides clients with trading ideas.The traders’ team conducts the activities concerning the securities purchase and sale and various financial instruments in the market for itself or on the client’s behalf.Equity research, sales, and trading division perform crucial roles.The traders utilize the Bloomberg terminals, conduct the executions on the trading terminals, and then trade on the institutional client’s behalf.

Equity researchEquity ResearchEquity Research refers to the study of a business, i.e., analyzing a company’s financials, performing Ratio Analysis, Financial forecasting in Excel (Financial Modeling), & exploring scenarios to make insightful BUY/HOLD/SELL stock investment recommendations. Moreover, the Equity Research Analysts discuss their findings & details in the Equity Research Reports. read more and sales and trading division play a vital role. They work in a very integrated fashion. So, it is equally crucial for us to understand the meanings of sales and trading because this is the heart and soul of research and trading, making money for the investment bank. So let us now look at how the sales and trading department within the investment banking firm works. So, we are talking about an investment bank, an integrated investment bank with a research department, and a sales and trading department. So, when the research department comes out with its own set of reports, the buy and sell on specific stocks, they talk to the institutional investors or send their equity reports first thing in the morning to the investors. The institutional investors may get convinced by the idea of trading in such securities because they may believe in the recommendation of the research department. They may look forward to executing certain trades, so a particular mutual fund Mutual FundA mutual fund is a professionally managed investment product in which a pool of money from a group of investors is invested across assets such as equities, bonds, etcread more may be interested in buying Microsoft stock for $10 million. Hence, when these large deals happen, $10 million, $20 million, etc., investment banks try to match the buyers with the seller without affecting the actual execution price to a greater extent. So, if there is an order of $100 million on Microsoft, that is huge. If it starts getting orders, the share price will increase because there will be few sellers. However, the buying momentum is still on; it may reflect that Microsoft’s price may rise by 5% or 10%, or maybe we are speculating on that part. But yes, it may escalate. So, an investment bank matches the buyers and the sellers and tries to keep the execution price or the price at which they will buy at a minimum. They also buy and sell securities out of their account to facilitate securities trading.

Sales Department in Investment Banking

So let us look at exactly how the sales department now functions. So, there are two separate mini divisions within the sales and trading division; one thinks of it as the sales department. Hence, the sales department is thinking of a research division coming out with their calls first thing in the morning before the market starts so that this sales guy may attend a morning meeting. Now, the morning meeting is all about the research, and the head of research, sales, and the sales staff would attend the meeting to understand the daily calls. For example, as we said, Microsoft may be a buy, so they hear the analyst out why it would buy or sell the sales and trading job is to talk to these institutional investors and tell them that your particular stock moves up may move down. So, the portfolio managerThe Portfolio ManagerA portfolio manager is a financial market expert who strategically designs investment portfolios.read more in writing may think about executing certain trades in the direction of sales from the investment banks. That is how the sales team works. Between the sales, guys are also responsible for constant communication between the research analyst and the trader from the investment bank. Hence, as we said, a research analyst prepares the research report and buy-sell recommendation; the sales staff hear those recommendations and talk to the portfolio managers. If there is a $10 million or $20 million to execute the trade, the sales staff passes this trade to the traders from the investment banks, so this is a trading division.

Trading Department in Investment Banking

Let us see how trading functions. Now, what is the objective of trading essentially? As we said earlier, traders need to execute the trade that is buying or selling the securities on behalf of institutional clients and ensure that the execution price is minimal. So, they are the ones who constantly look at the price charts minute by minute. They use Bloomberg terminals and execute those executions on the trading terminals. Then, they trade on behalf of their institutional clients. Many traders are sector experts, some specializing in technology stocks, or others may be FMCGFMCGFast-moving consumer goods (FMCG) are non-durable consumer goods that sell like hotcakes as they usually come with a low price and high usability. Their examples include toothpaste, ready-to-make food, soap, cookie, notebook, chocolate, etc.read more, pharma, etc. Overall, it is the sales and trading job. Traders find the minimum execution price for the institutional investorsInstitutional InvestorsInstitutional investors are entities that pool money from a variety of investors and individuals to create a large sum that is then handed to investment managers who invest it in a variety of assets, shares, and securities. Banks, NBFCs, mutual funds, pension funds, and hedge funds are all examples.read more. As we said earlier, traders need to execute the trade that is buying or selling the securities on behalf of institutional clients and ensure that the execution price is minimal. Let us see how trading functions. Now, what is the objective of trading essentially? As we said earlier, traders need to execute the trade, buying or selling the securities on behalf of institutional clients, and ensure that the execution price is minimal. So, they are the ones who constantly look at the price charts minute by minute. They use Bloomberg terminals and execute those executions on the trading terminals. Then, they trade on behalf of their institutional clients. Many traders are sector experts, some specializing in technology stocks. In contrast, others may be FMCGFMCGFast-moving consumer goods (FMCG) are non-durable consumer goods that sell like hotcakes as they usually come with a low price and high usability. Their examples include toothpaste, ready-to-make food, soap, cookie, notebook, chocolate, etc.read more, pharma, etc. Overall, it is the sales and trading job. Traders find the minimum execution price for institutional investorsInstitutional InvestorsInstitutional investors are entities that pool money from a variety of investors and individuals to create a large sum that is then handed to investment managers who invest it in a variety of assets, shares, and securities. Banks, NBFCs, mutual funds, pension funds, and hedge funds are all examples.read more.

  • What is Wash Trading?Net Sales DefinitionPosition TradingShort Sales vs Foreclosure

The reality is that sales and trading will never die. It has been organized and institutional for centuries and will carry on.

Sales and Trading (S&T) is an investment bank group having salespeople to call institutional investors with ideas and opportunities. In addition, it also has traders who execute orders and advise clients to enter and exit financial positions.

To become a sales and trading analyst, one must possess strong numerical and analytical skills, proficiency in Maths and Finance, teamwork and leadership abilities, time management capabilities, and the capacity to manage in the case of work pressure.

Salespeople market products to clients and convince them to conduct trades in the salesperson’s bank or investment firm. Also, the salespeople research to create a portfolio to pitch to clients that appeal to their business model.