science

Sales and trading

Sales and trading is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand Sales and trading rather than just read about it. In short: Sales and trading is one of the primary front-office divisions of major investment banks. The term is typically reserved for the trading activities done by sell-side investment banks who are primarily engaged in making markets for institutional clients in various forms of securities.

Key takeaways

Sales and trading belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect Sales and trading to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of Sales and trading from memory before moving on to harder problems.

Reference excerpt

Sales and trading is one of the primary front-office divisions of major investment banks. The term is typically reserved for the trading activities done by sell-side investment banks who are primarily engaged in making markets for institutional clients in various forms of securities. The trading floor of these banks will contain dedicated desks who generally focus exclusively on trading one form of security. These desks will more generally fall within the categories of fixed income, currencies, commodities, or equities. In market making, traders will buy and sell financial products primarily to facilitate the investment and trading activities of its clients with the goal of making an incremental amount of money on each trade.

Sales The Sales component refers to the investment bank's sales force within the sales and trading division. Generally, sales members will be placed on dedicated desks just as traders are and will have a dedicated list of clients that they are responsible for managing. The sales role is the client-facing role of the S&T division of a bank, which thus necessitates sales members interacting directly with institutional clients in order to assess their needs, provide general market commentary, and work with other members of the desk such as traders or structurers in order to price and execute their desired trades. The sales and trading function will also typically employ financial analysts that provide trading strategy advice to external as well as internal clients to support sales and trading. This strategy often affects the way the firm will operate in the market, the direction it would like to take in terms of its proprietary and flow positions, the suggestions salespersons give to clients, as well as the way structurers create new products.

Trading

Banks also undertake risk through proprietary trading (though this is subject to regulation within the US and certain European markets), done by a special set of traders who do not interface with clients and through "principal risk", risk undertaken by a trader after he buys or sells a product to a client and does not hedge his total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet. The necessity for numerical ability in sales and trading has created jobs for physics, math and engineering Ph.D.s who act as quantitative analysts.

Regulation of proprietary trading Sales and trading activities may include client facilitation, market making, underwriting support, hedging, and risk management. In the United States, the Volcker Rule generally restricts banking entities from engaging in proprietary trading, while allowing certain permitted activities such as underwriting, market making-related activity, risk-mitigating hedging, trading in government obligations, and acting as an agent, broker, or custodian. This regulatory framework distinguishes trading conducted primarily for a bank's own account from trading activity connected to client service or market liquidity. Permitted activities remain subject to limits where they involve material conflicts of interest, exposure to high-risk assets or trading strategies, or a threat to the safety and soundness of the banking entity or to U.S. financial stability.

See also Investment banking Stock trader Trader (finance) Proprietary trading Trade idea

References

Worked examples

Example 1 — a first encounter with Sales and trading

Start with the simplest possible case. Write down what Sales and trading claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to Sales and trading before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about Sales and trading ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of Sales and trading

In research: Sales and trading appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses Sales and trading in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: Sales and trading is common in secondary-school and first-year university syllabi. It links to neighbouring topics Banking, Finance stubs, Investment banks, so understanding it makes those chapters shorter.
In everyday life: Look for Sales and trading outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study Sales and trading in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what Sales and trading means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain Sales and trading out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is Sales and trading in simple terms?

Why does Sales and trading matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study Sales and trading?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on Sales and trading.