Trading Desk: Definition and Common Types

What Is a Trading Desk?

A trading desk is a physical location for buying and selling securities. It is used by traders trading for their own account or brokers who match buyers and sellers.

Trading desks are found in financial firms that facilitate trade executions in markets like equities, fixed income securities, futures, commodities, and currencies. They provide market liquidity.

A trading desk may also be called a dealing desk.

Key Takeaways

• A trading desk is a designated space within a financial firm for trading activity.
• Trading desks are occupied by professionals, ranging from proprietary traders to agency-only brokers.
• Trading desks are typically segmented by asset class or security types, such as equities, fixed income, forex, commodities, and derivatives.

Understanding Trading Desks

Traders in the financial markets gather in a room known as the trading floor or trading room. The trading floor consists of desks that specialize in specific security types or market segments. Trading desks are where securities are bought and sold within a financial institution.

Before the 1970s, banks had separate departments for different regions. In the 1970s, these departments were consolidated due to the launch of the NASDAQ. Today, many asset managers outsource their trading desks to larger institutions.

Trading desks are manned by licensed traders who specialize in specific investment types. They primarily use electronic trading systems and market makers to find the best prices for clients.

Trading desks receive clients’ orders from the sales desk, which suggests trading ideas to institutional and high-net-worth investors. Trading desks also assist clients with structuring financial products, identifying opportunities, and supporting agreements between companies and investors.

How Trading Desks Work

Trading desks earn income by charging a commission on trades. For example, a hedge fund may trade through an equity trading desk at an investment bank and pay a fee for each trade. Brokers may also operate their own trading desk and act as the counterparty for their clients’ trades.

There are various types of trading desks, depending on the security being traded. These desks are often located at central exchanges.

Types of Trading Desks

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.
• Foreign exchange trading desks facilitate trading in currency pairs and may engage in proprietary trading.
• Commodity trading desks focus on agricultural products, metals, and other commodities like crude oil, gold, and coffee.
• Derivatives trading desks specialize in options, futures, forwards, and swaps.

Each sector can be further subdivided. For instance, fixed income can range from safe U.S. Treasuries to junk bonds. Larger investment banks may specialize in narrower categories within these sectors.

Many brokers offer trading desks for clients, especially in the foreign exchange and equity day trading markets. These brokers differentiate themselves by instantly executing trades. Most large financial institutions have their own trading desks to assist internal teams and external clients with orders.