Trade Life Cycle Part 1
A trade, also called a deal, is an exchange of financial products from one entity to another. The life cycle of a trade is the fundamental activity of exchanges, investment banks, hedge funds, pension funds and many other financial companies.
All the steps involved in a trade, from the point of order placed and trade execution through to settlement of the trade, are commonly referred to as the trade life cycle. Trade life cycle consists of a series of logical stages and steps.
All the steps involved in a trade, from the point of pre-negotiations and trade execution through to settlement of the trade, are commonly referred to as the trade life cycle. Trade life cycle consists of a series of logical stages and steps.
Pre-sale stage: Marketing persons from investment banks, brokers and dealers introduce various financial products and vehicles to clients. Investors or institutional fund managers survey the market and find the most suitable and competitive products.
Trade execution: After trading negotiations between seller and buyer, an order is placed and the trade is executed. The completion of a buy or a sell order of a financial product is known as Trade Execution.
Trade Capture: After trade execution, the trade is booked in the Front Office system, Middle Office Risk Management system and Back Office system.
Trade Validation and Confirmation: Back office validates trade attributes and confirms trade settlement. Risk Management checks the valuation, risks and limits.
Trade Settlement: Any fee or premium needs to be settled. For a periodic cash settlement trade, such as interest rate swaps or bonds, there is a process of simultaneous exchange of cash between parties at each payment date.
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