How does a Trading Desk Work in the Stock Market in India

Before understanding how a trading desk works in the Indian stock market, let us briefly describe what a trading desk is and how to do a trading desk setup.

The concept of trading desk setup was first observed in 1970 in the Morgan Stanley Bank. After a decade, in the 1980s, it started gaining more popularity in European countries.

A trading desk is a place either in a room or a complete floor in a building. In this room or floor, individual desks are organized for each type of financial asset: commodities, stocks, currencies, and many more.

Traders sitting on each desk manage the accounts of their client's portfolios based on their academics, skills, experience, and license they hold.

There is a term called Proprietary Trading Desk in Indian stock market. It is also known as Prop trading; now, in this type of trading, instead of managing the client's portfolio, any individual, bank, or financial institution invests their money and enjoys the profit along with bearing any loss. The difference between the trading desk and the prop desk is that the client's money is invested in the trading desk, and traders have to manage on their behalf. In contrast, in prop trading, any individual or group of people invest and reap the benefits.

As we have seen, every desk specializes in different types of financial instruments, and there is one desk called the Commodity trading desk. At this desk, you can trade in hard and soft commodities. The Hard ones include Crude Oil, Silver, Gold, etc. The soft ones include Cocoa, Coffee, soybean, rice, corn, wheat, etc.

Apart from the two mentioned above, there are many other desks, such as the Equity trading desk, Fixed-income training desk, Foreign-exchange trading desk, and Derivative trading desk.

Now, we shall see step-wise how this trading desk works in real-life:

Traders work in a room or a trading floor with multiple desks. Or the desks set up in the ample open space.

Every trader focuses on any one security type in which he has developed the skills over the years and has the official license to deal in that security.

Their main work is to identify the best possible and profitable market for their respective assigned clients using various high-end software's keeping in mind the trading objective of the client.

A trading desk trader helps their clients create a portfolio and make supportive documents. They receive all the necessary documents and information from the sales desk personnel.

They further help their clients identify the best opportunity for wealth maximization via arbitrage, speculation, or any other suitable method.

Stock trading desks are also very important for providing expert opinions based on the trending market scenario and helping clients with any required legal information.

You might be wondering how they earn money by doing this, right? Well, they charge a commission on every trade they execute on behalf of their clients. For every transaction, a few percent of profit or a fixed amount of charges are decided for each security.

Investors often ask why they should go to the trading desk, instead of trading for themselves. Hence, there are various benefits of using such desks, and they all justify why you should hand over your portfolio to traders.

Let us see some of the advantages you get by opting for a trading desk.

1. Lower costs:

As the trading desks have a huge number of customers, their fees, commission, and operating charges are low compared to other financial service providers.

2. Expertise in their respective domains:

Only professionals and expert traders are hired to manage the clients' operations at the trading desk. You get the opportunity to leverage their expertise on your portfolio, leading to wealth maximization.

3. Sustained performance over the period:

By using proven and profitable strategies, you can feel relaxed as you will not end up in loss and will receive a consistent profit and a stable income.

4. Get the benefit of advanced technology:

Because of the huge client database, they always have the latest technology to track even the smallest change in the market, which human eyes can easily ignore. Humans may get carried away in their emotions, and make adverse decisions, but thanks to technological solutions that reduce the human factor and give accurate results.

The separate trading desk for each security allows for utilizing the best investment strategies for every type of security, minimizing any friction between them.

Though having so many benefits, trading desks have a few disadvantages also. You must know them too. The first one is the lack of transparency. Due to the stringent policies at the trading desks, there is minimal transparency. Sometimes, clients' money is not used as per their requirements and suggestions. And the last cannot be exactly called the disadvantages, but a few consider it, which is the commissions they charge, these services are not available for free, you have to pay.

Fun fact about the trading desks:

The foreign exchange or forex desk is the most widely used trading desk as the global forex market has captured a larger market and is profitable compared to equity and commodities.

Kalpesh is a experience content writer having vast experience in writing articles of various fields like health, finance, education, textile etc.