Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 1: Principles of financial trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 2: Principles of Financial Planning and Cash Flow in Financial Trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 3: Understanding financial trading techniques

FINANCIAL INSTITUTIONS

As we have previously mentioned, traders in financial institutions can either be those who are actively trading clients’ money, invested by the institutions clients for that purpose, or traders who trade the institutions own money. These two types have differing regulations and impact on financial institutions, as trading clients’ money held at the institution is different than trading the institutions own funds. Due to factors within the banking crises there are now clear guidelines on how institutions can use money they hold of their own versus client money in account. The core principle is that institutions must separate monies held for both types of trading, in that neither alone should be able to bring financial institutions into crises again!

Since traders using institutional funds are in many ways like individual traders, the only real difference being that they tend to trade on a larger scale due to the amount of capital allocation an institution can provide, along with the greater ability to mitigate risk mainly due to the larger volumes and market access institutions inherently provide.

Investors within institutions on the other hand are putting trust in institutions to provide them with capital growth through trading markets and this can be on a fully managed basis i.e. the investor has no input on how the money is used except factors such as how longs funds are invested, the amount of risk they will tolerate etc… or the investor might use brokerage services at the institution to make active decisions on how their money is invested.

Investors who don’t take an active part in their investments in institutions will of course expect performance updates on how their funds are performing, and of course expect them not only to increase in value but also get the best returns for their money i.e. if one institutions results are better than another’s, then investors like anyone else have a choice where to invest their money. Making these decisions can be tricky because comparing performance between one institution is not as easy as it sounds because all investments are not easily comparable which we are going to explain next.

So how do investors measure success between various options and institutions? Performance is always measurable and whilst certain factors will affect likely losses or returns, these factors such as risk appetite are decisions investors have a chance to make prior to investing. A good or smart investor will actively manage a portfolio taking into consideration both risk and reward.

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