Trade Life Cycle in Capital Markets

Trade Life Cycle in Capital Markets

In simple terms, “Trade” refers to the process of Buying or Selling, or Exchanging the product. In the financial market, “Trade” means Buying or selling financial products such as securities. Technically, trade is the conversion of orders placed on the exchange. This results in pay-in or pay-off of securities and funds.

Get complete CFA Online Course by experts Click Here

What is Securities Trading?

Securities are the financial products that are traded on stock exchanges. The most common types of securities include stocks and Bonds. There are many other securities that are designed to meet specialized needs. Securities are traded for the purpose and with the expectation of realizing a profit.

Meaning of Trade Life Cycle:

Trade Life Cycle can be defined as the set of events and actions that take place when there is a purchase or sale of any financial product. Trade Life Cycle includes stages starting from the point of order receipt and trade execution to settlement of the Trade. Below mentioned is the Overview of Trade Life Cycle in Capital Markets.

Trade Life Cycle Activities: There are mainly two types of Trading Life Cycle activities:

  • Trading Activity: The trading activity covers all the processes and procedures to capture trade from the client through the front office and enrich that trade so that it can be sent to operational activity.

This activity has two parts:

    1. Trade Execution
    2. Trade Capture
  • Operational Activity: Operational Activities include the following:
    1. Trade Capture (Back office)
    2. Trade Enrichment
    3. Trade Validation
    4. Trade Agreement
    5. Transaction Reporting
    6. Settlement Instructions
    7. The Role of Custodian
    8. Pre-value Date Settlement Instruction Statuses
    9. Settlement Failure
    10. Trade Settlement
    11. Reflecting Trade Settlement Internally

Get complete FRM Online Course by experts Click Here

Types of products traded: There exist various types of financial products which are traded in different exchanges and different markets. These products are as described below:

  1. Equity Securities: Equity securities are the financial products that represent an ownership stake in an entity. This is an investment in stock issued by an organization.
  1. Commodities: Basically, Commodity is a good used in commerce that is interchangeable with other goods of the same type. Commodities can be an important way to diversify their investment portfolio beyond traditional securities. Some commodities are decentralized and traded between market participants without an exchange or broker.
  1. Debt Securities: Debt securities are the financial products that require the borrower/issuer to repay the principal to the holder of securities. Along with that it also entitles the issuer to pay interest at fixed periods.
  1. Foreign Exchange: Foreign exchange refers to the exchange of one currency for another. These transactions take place in Foreign Exchange Market which is also known as the Forex market.
  1. Derivatives: Derivatives securities are complex and versatile. They represent huge markets. Derivatives are valued on the basis of underlying assets. They are structured and created to customize the risk and return features of other securities.

Reasons for Trading:

  • Trading can help in achieving greater returns and the profit potential can be better by learning how to actively manage the portfolio.
  • Stock trading gives a chance to invest in different sectors.
  • Daily trading or Margin trading helps in ensuring regular income.
  • Dividend stock can ensure a steady regular income from investment.
  • Bonus stock and Right issues help in ensuring more benefits from the future with owned stock.

Final Thoughts:

The Trade cycle involves stages starting from order receipt to settlement of the trade. The trade life cycle in the capital market which executes millions of trades from day to day is a mechanism that relies on quick and seamless action to deliver and keep up with the demands of buyers and sellers.


Author: Hetvi Shah

About the Author: Hetvi is a BBA(Finance) graduate. She is currently pursuing an MBA with Finance specialization. She has a keen interest in Financial Market, Financial Management, and Financial Analysis.

Related Posts:

Equity-Linked Note

Day Trading

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

8 + eight =