When looking into the systems and procedures of the trade lifecycle, the best place to start is with the people behind them.
A financial entity has many business activities relating to the trade lifecycle. Note that not all institutions employ all the business functions: the range and size of the organisation will dictate when specialists are required and when the same people carry out more than one function. For example, a small hedge fund might have the same person looking at market and credit risk control, manage without independent model validation and have one of the partners acting as the compliance officer.
We can divide the business functions into three broad sets:
• revenue generation
• activities that support revenue generation
We shall now discuss the various business functions.
The simplest form of trading is to start the day with a given amount of money and no other assets, transact trades throughout the day and finish in the evening with (hopefully) more money and no other assets. This would mean the business having no overnight risk to manage and the traders could be assessed by how much profit they brought in. Although this form of trading might exist for some very limited products, generally traders have to deal with a variety of products and assets and manage the risks associated with them.
Trading varies between the high volume and instant decision-making spot trades, to complex structures requiring weeks ...