Fixed income Foreign exchange and Equities Trading

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This type of trading can be described as a flow business: On behalf of the bank's clients, which may include other market makers, the bank ''makes markets'': making bid (in the

17 Source: Goldman Sachs, Annual Report 2002, p. 59.

case of a sale) and offer (when the asset is bought) prices for equities, bonds, foreign exchange or commodities. The firm is exposed to price or market risk because it is quoting bid and offer prices for the asset in question. The market risk is hedged through deals with other market makers. The trader profits from the difference between the bid and offer price. Given the small margins, the trader relies on large volumes to make a reasonable profit on the small margin between the bid and offer price for each transaction. Traders are backed up by a sales team, whose job it is to find clients for the equities, bonds, foreign exchange or commodities. A bank such as Goldman Sachs will also use its large client base from other parts of the firm (e.g. investment banking) to provide business for this trading.

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