CHAPTER 18
Approaches to Trading
The term trading covers a wide range of activities. Market makers, who quote two-way prices to market participants, may also be asked to provide customer service and build retail and institutional volume. Alternatively, their sole responsibility may be to run their books at a profit and maximize return on capital.
Trading approaches are determined in part by the nature of the market involved. In a highly transparent and liquid market, such as that for U.S. Treasuries, price spreads are fairly narrow, so opportunities to profit from the mispricing of individual securities, although not nonexistent, are rare. Participants in such markets may engage in relative value trades, or spread trading, which involves relationships ...
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