How the Trading Floor Really Works

CHAPTER 14

How Do We Manage These Risks?

This chapter will explore risk management procedures and their effectiveness on the trading floor. This is not just about the risk management team: risk is inherent in a bank’s business. The risk management team only forms part of the risk management process. In particular, the risk management team runs the new product approval procedures and works with the trading floor to identify and quantify risk to then set risk limits. After that, decision-making about the market and credit risk that a bank takes, such as whether certain trades should be done or certain risks hedged, generally occurs on the trading floor by the traders and in some cases by trading floor senior management. For example, at one particular ...