Do large financial institutions have traders who actually speculate in equities on their behalf? Do they daytrade, swingtrade, or what? Thanks, Norm
Hi norm. yes absolutely....but the common position whould be a sales trader. Golman sachs made a bloddy killing this year off of their trading profits. normally, if they make a market, they take the other side of their customers trade...hence creating a position for their proprietary account. sometimes they simply broker it out, but other times they take the other side. A good example is where i live in Central America. we deal quite a bit in the exotics...emering market government bonds. If i want 2,000,000 columbia 14's...i call refco, bulltick, morgan...whoever. they will quote a spread. today it is 110.0 x 110.35, offering a price somewhere in the middle. they then try to make that trade profitable if they can by finding a pricein another market...or offering the other side to another client. The try not to hold on to it too long in case there is a liquidity problem. holding these positions represent a lot of risk for the institution when brokerage by commision is safer. in the middle they will take risk. in something like treasuries, the spread is much much smaller..and more liquid. but as far as giving you 10,000,000 to just trade on your own...not really. that is a fund manager.
Goldman has a huge Equity Prop desk, FYI, that is segregated and has nothing to do with customer accounts. This is in addition to GSAM. They do not generate a huge % of total revenue, any longer from Equity Sales/Trading. The OP was not inquiring about Third World debt/Fixed Income trading.
Most bank traders are sales traders and block traders. The sales traders are driving order flow and handling client relationships, and the block traders are focused on managing firm risk. While most of these guys are probably great at what they do, they are usually not very good at spec trading. The block traders will take the other side of a large trade to facilitate client biz, and try to get out flat or maybe make it profitable. Even if they lose on some of these trades, the fact that they can attract larger orders by taking some risk pays off more often than not in the form of more order flow, i.e. more commission related biz. There are guys at the banks who speculate, but their returns can vary wildly. On the other hand, those are usually the guys who make headlines in the WSJ around bonus time. There is always three guys in London who work for _____ bank who guessed right on _____ (market) and made a killing, but that is more the exception than the norm.
Yes - firms like GS have prop desks that trade for the firm's account in many different instruments, including equities. These desks are considered "buy side" even though they're at firms with sell-side desks as well. As for style...they do whatever they can to make a buck. And whatever they're doing, they certainly wouldn't tell anyone