Key Components of Trading Operations

1. Trade Execution

This is the first step, where buy or sell orders are placed and matched through trading platforms or exchanges. It may be conducted manually by traders or automatically via algorithms.

2. Trade Capture

Once a trade is executed, its details (e.g., price, quantity, counterparty, instrument) are recorded in the firm's trading systems to ensure accurate tracking and reporting.

3. Trade Confirmation & Affirmation

The trade details are confirmed with the counterparty to ensure both sides agree on the transaction. Affirmation is the process of validating that the trade matches internally and externally.

4. Clearing

Clearing is the process of updating accounts and arranging for the transfer of funds and securities. It involves a central counterparty (CCP) that acts as an intermediary to reduce risk.

5. Settlement

Settlement is the actual exchange of cash for securities, typically occurring T+2 (two business days after the trade date) for most equity transactions.

6. Reconciliation

This involves comparing internal records with those of external parties (brokers, custodians, exchanges) to ensure consistency and identify any discrepancies.

7. Risk Management and Compliance

Throughout the process, trading operations teams monitor trades for exposure to risk, regulatory compliance, and adherence to internal policies.

8. Reporting

Regulatory bodies often require trade reports to ensure transparency and compliance. Operational teams ensure timely and accurate submission of these reports.