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Difference Between Financial Engineering and Quantitative Finance

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The Difference between quantitative finance and financial engineering ?
Basic Answer : Financial Engineering is profession where engineers creating products to help a given company and quantitative finance is profession where experts use math and statistics to measure risk, or invest money for a fund.
The difference between these two names gives us some idea about what we should be looking for, but there is a lot more for us to think about whenever we look at these words.

Developing applications with Mathematical theory that is related to Measure theory, Applied Walks, Continuous Stochastic Processes, Ito Calculus, Stochastic Differential Equations, Martingales, more akin to the Sciences, such as Physics, Mathematics (a more rigorous level of Mathematics) are all seen as Mathematical Finance.

Financial engineering involves option pricing, Secularization, Products of Structured Finance, more akin to Electrical Engineering, it measures interrelationships with Copulas. It is not as rigorous as Mathematical Finance and is more focused on a specific problem on financing the complex structure
Financial engineering involves the practice of programming, financial theory, tools of mathematics and methods of engineering:
{1} Persons have seen as the application of technical methods, more computational finance and mathematical finance, in the financing practice.
{2} Even though a number of financial engineers have studied engineering before and there are Universities that offers postgraduate degrees in this field have requested that applicants should have an engineering background, even though financial engineering does not fit in with traditional professional engineering.
{3} In America, the Accreditation Board for Engineering and Technology (ABET) offers no accreditation for financial engineering degrees.
{4} The International Association of Quantitative Finance offers accreditation for the financial accreditation program.
{5} Tools from applied mathematics, statistics and economic theory, computer science are used in Financial engineering.
{6} Persons who use technical tools in finance, such as computer programmers in banks or statisticians who work in government economic bureau, are seen as financial engineers.
{7} Even though, there are many practitioners who restrict the term to persons who are educated in the full range of tools in modern finance and there work has to be informed by financial theory.
{8} Persons have even applied more restrictions, and only consider those who originate new financial strategies and products.
{9} Financial engineering is very important for persons who are involved in the customer-driven derivative businesses
{10} This includes programming and quantitative modelling, risk managing derivative products and trading that will comply with regulations and Basel Capital/liquidity requirements.

{11} Quantitative analyst or Quant covers all persons who work with math for practical purposes, such as financial engineers Quant also refferred to as „financial quant.“ They are also similar to the financial engineers.
{12} A theoretical quant, or a quant in only one special niche in finance is different from financial engineers who are practitioners with broad expertise.
{13} The first generation Financial quants to arrive on Wall Street in late 1970’s to early 1980’s adapted the names Rocket Scientists or aerospace engineers an older term which was first used when rockets were developed in Werner Van Braun or WWII and more recently, the NASA space program.
{14} Disruptive innovation which includes fondness and adventurousness are synonymous with financial engineers.
{15} There were Financial ’Rocket scientists“ trained in statistics or finance, applied mathematics, they spent their whole careers doing risk-taking. They applied mathematical techniques to financial jobs or worked for themselves, because they were not hired for their mathematical abilities.
However, more recently the financial engineers of this generation are equipped with their PhDs in physics and mathematics and they start their careers in non-financial fields or academics.

Quantitative finance or Mathematical finance, is applied mathematics in one place, if you are only interested in mathematical modeling of financial markets overall, mathematical finance will change and widen the numerical or mathematical models without connecting with financial theory, observed market prices will be taken as input Mathematical consistency is needed, not like economic theory, therefore a financial economist may study the structural reasons behind trhe share price of a certain company, while a financial mathematician would settle for the price they are given without checking anything, or they would use stochastic calculus to find the equal value of derivatives of the stock (see: Financial modelling; Asset Pricing; Valuation of options) In mathematical finance the fundamental theorem of arbitrage-free pricing is a key theorem. However, for the Black-Scholes formula and equation are found in the key results.
In the early 1990s the first degree programs were set up for Financial Engineering, but over the years the number of programs has increased very fast. Persons now refer to those who have a degree in the field as ’financial engineers“.

The term ’aggressive restructuring of corporate balance sheets“ is sometimes seen as a disparaging term; persons use it when they are speaking out against persons who they think are profiting from paper games that will cost employees and investors as well. However, the term financial engineering is more widely used in recent times.
The fields of Computational finance and financial engineering has been overlapped heavily by Mathematical finance. Financial engineering focuses on modeling and application, stochastic asset models often assist here. While Mathematical finance focuses on building tools of implementation for the models generally and analysis. Advanced quantitative techniques are required for both branches of finance: derivative pricing on one side and risk- and portfolio management on the other side.
Louis Bachelier a French mathematician is seen as the author of the first scholarly work on mathematical finance, Mathematical finance became a discipline in the 1970s even though the work was published in 1900. It followed the work of Robert Merton, Fischer Black and Myron Robert on option pricing theory.

Many degrees and research programs are being offered today for Mathematical financing.

Proprietary Trading Companies in India

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Proprietary Trading in India

Whenever a company or bank decides to trade bonds, stocks, commodities, derivatives, or other types of financial instruments that are located within the account while they use their own funds instead of the money from clients, this will be called proprietary trading or prop trading. This will allow the company to gain profits from the trade instead of commission from client trades. Financial institutions and banks will use this trading type to increase profits. They will be considered more advanced when compared to a single investor due to the marketing data that they have access to. They also have sophisticated trading and modeling software. In India, prop trading is not usually business and it is very rare based on number of traders in this country.

By theory, there are several strategies that a prop trader will use like global macro-trading, arbitrage, etc. in order to increase returns. Even though this type of trading is considered to be risky, it can be very profitable for banks. During 2008 in the Financial Crisis, hedge funds and prop traders were attacked during this time. This caused the introduction of the Volcker Rule, and this is what limited prop trading and regulated how it operates. This was to avoid any type of issues that can happen between the clients and firms. However, a single investor will not be able to benefit from this trading type due to the activity not involving trades on client behalves.

When we talk about proprietary trading companies in india we can see that their names and websites change very often because they merge, change over time, make transformation very fast.

Proprietary trading in India

List of proprietary trading firms in India:
Adroit Financial Services
Adroit has changed itself from a Stock Broking Company to a Financial service provider that is very successful. Trend-setting steps were taken by the company that caused it to emerge as a professionally managed capital market service company that is recommended by many for providing broking services, IPOs, mutual funds, commodities, currency derivatives, internet training and depository services.
National Commodities and Derivatives Exchange Ltd. (NCDEX), National Securities Depository Ltd. (NSDL), Central Depository Services Ltd. (CDSL) Multi Commodity Exchange of India Ltd. (MCX). A Strong base of well-trained and very experienced Arbitrageurs and Traders, they ensure premium quality service to clients and customers through the many branches spread across India.

Adroit was founded in 1994, and it is privately held, and employs 501 to 1000 persons. Arbitrage Business, Online Trading (Commodity, Equity, Currency) The main office is located at Kaushambi, Ghaziabad, U.P.

Ariston Capital Services Pvt. Ltd.
Ariston Capital Services Pvt. Ltd. Has interests in debt syndication and management advisory, M&A and private equity placement. The company is a Consolidated Financial Services Group and they focus on sectors such as airports, ports, infra ancillary, logistics, manufacturing, mining, power and roads. It is a privately held company, that employs 11-50 persons
They can be found in Mumbai, and this is their website http://www.ariscap.com

BLB Limited

BLB Limited, knows about the art and science of risk-free trading. As the flagship company it is the leading liquidity provider to the derivative and equity markets in India.
The company has been one of the leading players in the market and it integrates risk-free trading and technology aimed at value creation. BLB has been consistently ranked among the top 10 traders by BSE Limited. The Company’s daily traded volume is over USD 200 million for its average daily traded volume.
BLB has an immaculate understanding of trading dynamics and market structure and they use the latest technology to generate superior trading returns.
They have been specialists in Jobbing and Arbitrage distinguished by their capital commitment and great understanding of trading dynamics and market structure.

Capstone Securities Analysis Pvt Ltd

Capstone Securities Analysis Pvt Ltd (CSA) a financial services firm that is engaged in online trading of shares in US securities, mainly in the very active NASDAQ, Amex stock and NYSE. Traders at Capstone have been conducting research and trading since May 2005. Capstone’s management insists on seeking to encourage career growth of its professionals by providing the best performance incentives in the industry. They also offer leading technology and comprehensive career trader training and opportunities.
Their trader recruitment, training and management program is a special opportunity designed to maximize trader skills they teach discipline, intellectual achievement and focus.
Capstone is also a pioneer in providing intra-day trading and research services and for its customers.
A company that is managed and operated by industry veterans, Capstone offers young talent opportunities to develop skills and build careers so they can enjoy the same lifestyles as exceptional traders.

Their offices are found at: Commerzone, Tower 1, Ground Floor, Airport Road, Off, Samrat Ashok Path, Yerawada, Pune, Maharashtra 411006, India

Dolat Capital

Dolat Capital Market Pvt. Ltd. Adheres to mathematical and statistical techniques and also use multi-strategy trading, as they are dedicated to producing superior returns. They trade actively in all Asset classes: futures, commodities, currencies, options, equities and fixed income as the take advantage of their ultra-low latency infrastructure. Which is in C++, one of the most competitive in latency.

. We trade actively in all Asset classes: equities, futures, options, commodities, currencies and fixed income taking advantage of our ultra-low latency infrastructure, which is in C++, one of the most competitive in latency.
The firm was started by legendary trader Dolatbhai Shah, in 1971, he provided two sided markets in non-listed equity derivates in India.

Dolat Capital is a privately held company that was founded in 1970, their headquarters is, located in Mumbai, Maharashtra, they employ 201 to 500 persons at this time. The team at Dolat Capital has a team that constantly works towards innovation, they are dedicated to production superior returns by using their superior methods.

Dynamic

Dynamic Trading Company, is a privately held company that was founded in 1984 and has its headquarters in Chennai, Tamil Nadu, India. They are in the business of trading and supplying supreme quality mechanical transmission products.
The very experienced staff offers Tools, Industrial Automation Components, Universal Joints, Mechanical transmission Couplings, Industrial Engineering Tools, Ball Transfer Units, Pulleys, Mountings, Grippers, Automation Components, Seal/O-Rings and couplings.
Their skilled technicians are experienced professionals who are quality analysts who will always deliver on time.
The Company employs 11 to 50 persons, at this time.

Edelweiss Capital

The Edelweiss Group is a leading diversified financial services conglomerate, providing a broad range of services and financial products to a broad client base that includes individuals, corporations and institutions in India.
Relentless focus on governance and prudent risk management is central to what they do. Their customer-centric initiatives and intelligent way of investing in people, technology and brand is seen as their differentiated approach to business, this has helped them to step up performance and they can now say they are ready for the future.
Their journey for the past 2 decades can be put together in 5 phases, each vastly distinctive from others. Each of the phases has been challenging but highly rewarding.
The business can be found at Edelweiss House, Off, C.S.T. Road, Kalina, Mumbai, 400 098

Estee Advisors Private Limited
Estee Advisors Private Limited creates algorithm-based investment products. They currently provide arbitrage products and index replication for the Indian market. Their PMS strategy, I-Alpha, has been in the market for 5 years with best in class returns. Sandeep Tyagi promotes the company, an entrepreneur who is experienced and has close to two decades of experience in Financial Services, computer science and analytics.
This is their website http://www.esteeadvisors.com
And they are found at: 8th Floor, Block I, Vatika Business Park, Sohna Road, Sector 49, Gurugram, Haryana 122001, India

Focus Comtrade
Focus Comtrade commenced its operations in 1999 by a team of professionals who had a vast experience in many industries and businesses. They are committed to delivering the best value to investors through innovative products, state of the art technology, personalised service and Investment/ Trading Strategies.
The company employs a very skilled team of analysts who are supported by a professional team of leaders who is backed by a strong research team with technical, astrological and fundamental analysis.
They use a process driven, diligent approach, powerful research and analytics, and a highly recommended dealing room.
Their focus is, to deliver with vision and the now offer a range of financial products and services, such as Equity and Commodity Broking, Portfolio Management Services, Online Trading and Research E-Magazine.
They put the Customer first, at all times and they have a team of highly trained traders who have created a track record in producing good returns.
Focus Comtrade is found at: 401/405 Dalamal House, 4th Floor Plot No. 206, Jamnalal Bajaj Road, Nariman Point, Mumbai -400021.

GoSTX
GoSTX is a Prop Firm that allows individuals to create trading laboratories for themselves. Registration is simple, fast and free on their website. The firm is looking for talented or persons who want to learn how to be stock traders (day traders) persons will trade with real capital with no risk or cost to them during a trial period.

IDBI Capital Market Services Ltd
IDBI CAPITAL MARKETS & SECURITIES Ltd., (IDBI Capital) is a leading Investment Banking and Securities Company that is also a subsidiary that is owned by the IDBI Bank Ltd.
The range of services they offer includes: Research Group, Debt Placement and underwriting , Fund management (Managing Assets-Pension/PF Fund Managers for clients) distribution of financial products, Project appraisal & Debt syndication, Stock broking- Institutional and retail, Corporate advisory services, mergers and acquisitions, private equity, investment banking and capital market products.
They cater to corporates, individual and Institutional clients with their full suite of products and services.
IDBI Capital continuously raises the level of their standards so they can be among the top ranks in all business lines with an international presence. Customer satisfaction is what keeps them committed, focused and passionate as they serve with integrity.
They work together as they want to be the most preferred calling point for all their business lines, they are a customer centric team that maintains transparency, integrity and responsibility that will drive them towards their vision. This will cause them to have an international presence.
They plan to promote innovation and teamwork as they drive their business seamlessly with commitment and passion towards customers.
IDBI Capital also plans to make their mark on the international front in all their business lines as they improve processes and systems and deliver superior value to customers and hope they will be delighted with great service.

IKM Investor services Ltd.
IKM Investor services Ltd. Is a proprietary trading company that was founded in 1961 and specializes in market- neutral trading and arbitrage trading. They are a trading member of various commodities, currency exchanges and Indian stocks.
IKM is now a leading broking and financing company and it is managed by three directors.
IKM is not seeking any new clients or investors at, this time.
IKM employs 201- 500 persons as a Sole Proprietorship trading company
Their headquarters can be found in New Delhi, Delhi

India Advantage Securities Ltd
India Advantage Securities Ltd. Is a service provider in Mumbai, for equities services, derivatives services and commodities services.
New possibilities for participation of investors and traders have emerged in Commodities. They have recognized that commodities hold a wide range of unexpected opportunity to evade business risks, and still provides attractive trading and investment prospects for traders as well as investors.
In this firm, individuals are focused, committed and part of an empowered team, that adds value to achieve goals with honesty and integrity to enable continuous growth.
They are located at Om Plaza, Vasanji Lalji Road Opp. Kandivli Station, Kandivli (West), Kandivali West. Mumbai-400067, Maharashtra, India


Jaypee Capital Services Ltd.
A firm that has been moving towards infiltrating new markets and regulatory environments as they take steps to become a global securities firm. Their services presently include securities broking, currency broking, financial advisory services, depository custodial services, and corporations and institutional investors in Indian and Global Markets. They are presently in the US which is the oldest market in the world, and this has given them the foresight to prepare for exploiting the market challenges and opportunities in the future. The Company has been known to think and execute big.
Jaypee Capital Services Ltd. was founded in 1994, offers Financial Services such as Commodity Markets, Equity Markets, Derivatives, Equity Research, client management and Financial Markets and employs 201 to 500 employees.
It is a privately held firm and its headquarters are, located in New Delhi.


Kumar Share Brokers Limited
KSBL Securities Limited is professionally managed and provides single window convenience for all financial services. They are a member of the National Stock Exchange, Bombay Stock Exchange, Sebi approved portfolio manager through network of branches and associates and Depository Participant of Central Depository Services. They offer futures trading in commodity derivatives and Multi Commodity Exchange and National Commodities and Derivatives Exchange; they also have an academy for financial learning- Kumar Academy of Financial Management (KAFM) they offer long term and short-term courses to accommodate persons from all the different backgrounds.
They offer currency futures trading through a membership with MCX Stock Exchange (MCX-SX) and United Stock Exchange, through their fully owned subsidiary company KSBL Commodity Brokers Private Ltd.
They plan to satisfy their clients and associates by informing them about the future.
They are located at G-55, 53rd Floor, Royal Palace Vikas Marg.
Laxmi Nagar Delhi 110 09

Mansukh Securities & Finance Ltd
Takes care of the investment and trading needs of their clients, Corporates and Business Partners HNI’s etc. You can choose your pick from the various Trading and Investment solutions customized to fit with your needs. Their offices are, located in more than 100 cities across India, serving the investment needs of the many clients they have on their data base.
You can open an account with them and get access to their mobile trading application today.
The Address: Mansukh House, Plot No. 6 Opp. Mother Diary Plant,
Patparganj Road, Panday Nagar, Delhi 110092


Raptor Trading Group
Raptor Trading Group (Raptor’s) was founded in 2003 and they are the leaders in Multi Asset Trading Solutions and the provision of Trading Connectivity.
Raptor’s Trading Systems’ solutions are used Globally by their clients. However core clients focus is given to these firms, Hedge Fund Trading, Buy Side, Sell Side, Custodial Services, Portfolio Management and Proprietary Trading.
Raptors unique ability to integrate with most major systems causes it to be an ideal solution that can be quickly implemented with a small cost and less disruption to clients.
The client needs come first for Raptor and no solution is too complex to be used.


SMC Global
SMC Global was founded in India, in 1990, it is a leading and very diversified financial services companies in India. SMC offers services across brokerage (commodities and currency, across asset classes of equities including cash and derivatives) research, investment banking, financing, depository services, insurance broking and clearing services and wealth management, real estate advisory services to corporate , high net worth individuals, and other retail clients and distribution of Third-party financial products.
You can become an SMC business partner who achieve goals and win awards and you’ll always have easy access to your portfolio.

TransMarket Group L.L.C
TransMarket Group L.L.C was founded in 1980, it is a privately held company global markets trading firm. They have been successful in trading by using their unique talent and the use of next generation technology to capture opportunities around the globe and do risk management in Financial markets. Their business has been developed with discipline, hard work and patience. They are constantly learning, and they relentlessly improve their expertise.
They hire on a rolling basis and they are constantly seeking new talent.

Trenchant Financial Technologies
Trenchant Financial Technologies India Private Ltd. (Trenchant) believes those in the financial sector makes the best living, they also believe in providing opportunities for the brightest minds in India, so they can make a good living just like the traders in the richest city in the world.
New York Stock Market is the largest and there are some of the best traders in India. Trenchant Financial technology is all about moving Wall Street Trading to India
They will be providing support for world class trading software, their programmers now provide support for world class trading software.

Banking Relationships and Prop Trading

A bank is just a company that is able to help other businesses to raise their financial capital, manage financial risks, and deal with foreign currency exchanges. Originally, trading has always be thought of to be with big banks, simply because they have to market to who they are providing services to. So, if a company decides to sell stocks using a certain bank, then whoever had purchased the stocks first are going to have issues when it comes to selling these shares to individual people if those people do not know the company well. So, the bank will then purchase the shares and then look for buyers. This helps to give market liquidity. A bank does not worry about the share value, they only care if they are able to sell stocks higher prices than what they purchased it at. In order to do something like this, investment banks will have trader employees. The traders will start to think up strategies inside of the system to bring in more profit besides just providing liquidity. It was because of this that proprietary trading was created and become a big thing.
Prop trading really evolved when banks started reaching points where they had to employ multiple traders who only had the job of trading, and hopes of higher profits. It was these jobs that were considered to be internal hedge funds inside of the bank, which were handled away from average trading. A proprietary desk would often have high risk value. Banks like Merrill Lynch, Goldman Sachs, and Deutsche Bank earned most of their profits and even losses from prop trading.
Certain regulations required that these prop trading desks be kept away from client activity as well as trading and this was done by using Chinese Walls, or a barrier that stopped the outflow of information. This prevented there from being any issues.
However, because of newer regulations such as the Volcker Rule, a lot of banks have shut down the proprietary trading desk. Yet, proprietary trading has not died out, it is just done within specialized hedge funds and trading firms. The trading done within firms is often done using specialized technology that uses very complex algorithms and quantitative models.

Prop Trading Strategy

Arbitrage is the biggest strategy that will be used in trading and normally it is used by banks. Basically, this is where a bank will take advantage of any discrepancies of pricing through sales or purchases of certain securities in order to create market neutral profits. This particular trade will deal with risks like operational risks and even settlement risks. There are often a lot of different banks that will watch for these types of opportunities.

There is no 1 or more trading strategies when we talk about prop companies. Each trader has its own strategy.

One of the interesting facts is that there are different types of arbitrage but the most common one is merger or risk arbitrage. This started during the 1980s. This is when one company decides to purchase another company, and then the price of shares for the purchaser drop, and the price of shares for the other company will increase. Whenever the bank feels that a company buyout will happen, it will sell off any short shares left from the purchaser and then will purchase shares of a purchased company.

Large Bank Prop Trading
When a bank has client issues and there is a risk to the money of the investors, often times the trading desk will fall, similar to what took place during the 2008 financial crisis, is what has caused prop trading to decline.
The traders at these desks will often have a lot of education and trading experience. Computer programmers and even mathematicians are some of the traders that are wanted, even with automated strategies try to find market inefficiencies being a main part of trading now. The math or computer-based trading also called quantitative trading is actually growing and now a computer can complete tasks just more efficiently and faster than a human.
The prop traders for banks will be an employee of that bank, and will often have large salaries due to the fact that they are able to handle large capital amounts. Whenever a trader has great performance, then a bonus is often given. However, now that there are not a lot of prop trading jobs open, this is not something that most people will have experience in. Yet, smaller business that are easily accessible are best for those who are looking to make a career out of trading within the market.

Trader Training

There are a lot of companies that will train new traders all about how the market works. The training quality that is provide will be different based on the company. Some will provide a new trader with specific strategies to be followed, while another may will not teach you any strategies and will expect the trader to make their own strategies that will be profitable. If a person is not that experienced and wants to work at a prop trading firm, then they need to ask about the type of training and if they provide any strategies. A new trader can progress much quicker if there is high quality training.
Capital
The main point of proprietary trading is for a business to take their money and then turn it into even more money. So, these companies will provide a trader with capital and if money is made, then they will get money as well. However, there are some businesses that will only provide capital for day trading and this could be millions. Then there are some companies that will have the trader add their money as well. This can help the company to lower risks as that capital may be helping to handle losses that a trader may end up with. A trader who has a strong history and plenty of experience may not have to add their money. In general, a prop trading company will provide an increase in capital than a trader would have access too. This provides a chance for the trader to have a steady income from trading.
Pay
Many small prop trading companies will not have salary pay. A trader will receive pay that is based on how they perform. They are not considered to be an employee and they are just contracted labor that is used to trade capital.
When it comes to how a trader like this is paid, they will get a certain amount of percentage of the profits that have been made. This could range from 100% all the way down to 50% of what comes from the market during the month. If a company only pays 50% of the profits will often have a cheap trading fee. A company that is paying 100% are making profits in other places and this is often paid through commissions and then charging you a fee in order to use the trading floor and capital.

Remember, the percentage of payout is not the only part that will need to be considered when it comes to picking a prop trading company. The increased fees may cause it to be difficult to create a profit, so a company that has low fees will allow an easier profit, and that means that up to 75% is going to profitable unlike 100%.
Based on this model, months could pass by before traders would get a paycheck. It will take a lot of time to be profitable. The company can also provide a lot of capital but only after smaller amounts are used. There are only a handful of proprietary companies that will hire a trader to be employed and will provide salary pay until profits are made. The traders may also have to sign contracts which will keep them from taking the salary pay and then deciding to leave when profits start coming in.

Remote Trading or Floor Trading
Evan we talk about proprietary trading companies in India or USA or proprietary trading firms in Bangalore or any spot on this planet, it is good thing that in last several years a lot of traders become remote traders who trade forex, stocks or options from home.

Originally these trading companies were located within a physical office, but due to the update infrastructure it is very common for a prop trader to work at home. These people called remote traders and they are able to be at home and are often very experienced and have a long history as well as experience with risk control as well as discipline. When a person remote trades the trader may need to have a deposit to balance a loss that could happen because of system failures.
However, when a trader is floor trading there is less of a risk for companies due to the traders being physically monitored. Therefore, if there is a hardware or software failure there will be several people there to handle the issue.

A big benefit of prop trading is going to be the profits. For instance, when a person is a broker and they get commission while the company gets 100% profits from the trading. When a person is a prop trader, the company or bank will often end up with maximum benefits which will come from these trades. Another type of benefit is businesses are able to stockpile securities that can be sold in the future. If a company purchases securities for the future, they can then sell the stocks to clients who will purchase these shares. The stocks can even be loaned to a client who want to short sell.

A company can then become a main marker for the market. When a company only handles certain securities then it will be able to provide investors with liquidity. They can also purchase securities using their resources and eventually selling them off to investors during later dates. Yet, if the company purchases them in large quantities and over time, they happen to be worthless, then the company will have to handle internal losses. The company will only benefit if the security prices increase or if people purchase them at higher costs.

A prop trader can also have access to certain technology as well as specialized automated software. These trading platforms allow a trader to have access to various markets and even allow them to engage and process high frequency trades. The trader can even develop a specific idea and then test it out as well as run demos on a computer. When it comes to a proprietary company, the trade platform will often be used in-house and only traders will use this. The company will then get all the benefits from having this software which is what a retail trader is lacking.

Proprietary trading is a really exciting field. These prop traders will be given capital that they can use to trade with just to help make solid returns on a daily basis. A trader that is on salary and the positions like this will be hard to find and will often require a person to have a high education level as well as extensive trading history that has been quite profitable. There are often many proprietary firms that can be found all around the globe and before joining, research should be done to learn the training programs and pay structure to gain high levels of success.

Prop trading firms in India are not different than any other prop company in USA. Platforms, organization structure are the same. Only capital can be problem…

Do Forex brokers really trade against on their clients ?

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Are brokers prone to trading in opposition to clients?

My question is easy : Do forex brokers trade against you ?

The plain fact is that a majority of brokers tend to trade by holding opposing positions to potential clients. The exact mechanism of this process varies significantly from one broker to another. To put things into perspective, we can classify brokers into two broad categories, namely, X and Y book brokers.

• X type brokers typically achieve this by investing in the other spectrum of trade. However, this carries the risk of being left in the neutral scale on the market, therefore, they may be let off because they are simply to offset the balance of trade. This means that they do not intend to go against their clients in spirit.
• X type brokers tend to pinpoint certain client positions to offset. Since this takes place by changing the direction of the market dynamics, it has more of a materialistic influence, so to say.

Both X type and Y type brokers can run into some significant dilemmas if the offset above causes a liquidity risk. It is best to avoid beating about the bush in this regard and have an open discussion with your broker about such policies.
In other cases related to Forex brokers, it is important to identify the kind of trade system you are likely to be working with. This goes a long way in helping you understand the trade-offs of working with a certain broker, and whether they are more or less likely to trade against you.

No Dealing Desks or No Dealing Desk ?

The Shortcomings of Working With Dealing Desk (DD) Brokers

Dealing with desk brokers trade against clients by setting up bids and prices that are bound to attract traders. They work on the principle of buying and selling on low and high rates respectively, or in other words, by reaping the advantages of the fixed spread for the bid vs. the quoted price.
On the other hand, non-dealing brokers work on a slightly different principle; however, they too trade against clients by working with liquidity providers to stay up to par with traders who offer variable spreads. Moreover, they are prone to offering low spreads. However, in both cases, fixed or variable speeds can be considered advantageous or disadvantageous depending on different situations.

The Dynamics of No Dealing Desks (NDD)

A serious dilemma accompanying dealing desk brokers might be that DD brokers are likely to be betting against you, creating a dire situation of clashing interests. This can create a lull in your working relationship, with some brokers actively harming the interests of their clients. It is best to stay attentive and keep an eye out for any funny business.
Additionally, there are delays during order fulfillment because a larger shipment can increase the likelihood of human error and lead to significant losses.
On the contrary, a non-dealing desk mechanism can readily use liquidity providers to link orders with traders. Since this system is digitized, there is a low probability of delays. This isn’t to say that all dealing desk brokers can’t be trusted, however, with increasing cases of dealing desk scams, perhaps it is time to move on to a more automated system to avoid such instances.

Comparison
Getting your hands on the right Forex broker is the first step to succeeding as a Forex trader. There are different categories of Forex brokers that you can choose from. However, two main classifications can be made. Namely, Non-Dealing Dest Operations and Dealing with Dest Operations. The following sections contain detailed information on both these types so that you can make an informed decision about which one to choose.
Structures of Price Flow for NDD Brokers
Typically, NDD brokers use rates of fellow FX participants. These including stores with a financial prospect, commercial or national banks, and even other trades to quote a suitable bid. These liquidity providers then send over their suggestions, and the bids are updated accordingly. Simply put, NDD brokers accumulate the consensus of prices to put out an appropriate bid to potential clients, with liquidity providers as competitors.
Alternatively, the whole process can be automated, where the brokers are simply the middle man between the liquidity providers and clients. This allows for a more widespread approach to different sources for liquidity quotes and allows to easier handling of client orders as well.

Structures of Price Flow for Dealing Desk Brokers

Dealing desk brokers typically do not set the bids for clients orders to match the prices quoted by liquidity providers. This puts them in a position where they are the direct competitors of their very clients. This does not necessarily mean that dealing desk brokers cannot approach liquidity providers. However, it is to say that the bulk of this depends on the direction of trade, size as well as the market dynamic.

If at a certain position in the market, the dealing best broker records match up with those of the liquidity providers, then a suitable price can be set. If the marketplace may be in turmoil and they reach a crossroad then the brokers can opt to close off the account at the top bid presented by any of the liquidity providers.
Dealing desk brokers can also overhaul their system completely and introduce an automated system. This makes it significantly easier to execute bids and client orders, all while being enclosed in a secure electronic system. This does not guarantee that brokers may access the prices quoted by liquidity providers through this electronic interface because some factors still depend heavily on the broker. For instance, the decision to enter their current position in their official records or not could also play a role in determining how they function.

Once dealing desk brokers have their hands on a certain position, typically comprises one full lot, it is up to them to determine whether it is more suitable to close on that position or keep the bid open. More often than not, they can decide to secure the account against a given quoted price by the liquidity provider.

A majority of liquidity providers tend to quote FX rates about interbank markets and do not show interest in trading for any less than 100,000 or anything over that. Therefore, dealing desk brokers who are offering liquidity to traders are bound to assume the opposite side of their client’s order if they are lesser until they are at some point where it is appropriate for them to execute an order in collaboration with a liquidity provider.

Notable Features of Non-Dealing Desk Brokers

One of the most significant features of NDD brokers is that they tend to present some of the highest bids and quoted prices from the market. This is because they can access several liquidity providers, and can provide clients with top-notch market rates for some sort of fee.

For most brokers in this field, commissions make up the bulk of their income and profits because they do not tend to occupy positions in the market for themselves. Similarly, the asking price or bids tend to be variable because there are several quoted prices from numerous sources in the market. This may cause the spread to become significantly widespread or even become very small, depending on the timeframe.

Similarly, in the non-dealing desk environment, there needs to be separate recognition between automated and non-automated systems such as Electronic Communications Network (ECN) and Straight Through Processing (STP) because even though both systems work well in bringing out the most premium bids, there are some differences. For instance, an ECN has more access to optimal quoted prices as compared to an STP system. Additionally, an ECN can also provide smaller spreads. This benefits these types of brokers because they can charge a generous commission for quoted some of the best prices on the market for their customers.
Also, since the advent of these fast-paced systems, it is not common for non-dealing desk brokers to quote prices again once a client has given the go-ahead for the execution of a certain order. This is because these brokers are not holding any positions for themselves. Therefore, most of these trades take place at the set standard asking price. However, it is important to consider that this mightn’t be entirely true if the market is in turmoil due to some changes in the international market or stock exchange.

If a broker is offering execution of orders through non-dealing desks, then that means that they are most probably getting their bids from some well reputed top tiers financial stores or banks. Since the STP and ECN systems are relatively broad and we do not understand their full implications as of yet, some brokers can take advantage of this and lure in clients by quoting certain offers and services that they cannot provide fully.
According to the classic description, ECN systems translate to the fact that a certain broker is linking a particular client’s order to a wide network of numerous prices from several other traders. This claim may well be true; however, to know for sure, it is important to find out how many liquidity providers or top tiers banks the brokers are associated with.
Typically, top tier banks don’t provide liquidity with tighter spreads for their bids and quoted prices. The bulk of financial institutions tend to only offer tight rates for smaller spreads that tend to amount to multiples of lots of 100,000 or higher each.

This ensures that such brokers with authentic links to liquidity providers cannot quote lowly priced rates for opening bids. You can easily spot a DD broker in this regard by determining if the size of the offered account is particularly small as compared to a bid of a sizable account, perhaps one that can even be valued at several thousand.
More often than not, brokers without non-dealing desk tend to present financial records with sizable opening bids ranging from 10,000 to as high as 25,000. The ratio of such leveraging is typically measured and controlled strictly. Such accounts are essential to ensure that the brokers only offer these large, bare minimum amounts for trades.
The majority of these brokers are connected to liquidity providers that are available around the clock on weekdays. This is because they typically have successful trade offices in big international stock markets such as Tokyo, New York, as well as London.

Notable Features of Accounts Run by Dealing Desk (DD) Brokers

As opposed to non-dealing desk brokers, DD brokers tend to place the bulk of their offers on a micro or mini lots. This service is usually not available with NDD brokers. Since DD brokers have linkages with liquidity providers as well, they require some form of commission to pass on quoted prices from liquidity providers to clients. This, in turn, means that they have to quote marked up rates to increase this said commission.
This markup only sells if a client’s order is big enough to be executed in collaborated with the quoted price suggested by the liquidity provider. Creating a link between the trade orders helps them earn small profits on a consistently large profit margin and bulk trade. Apart from that, another factor that might account for the income of such brokers is the quality of the ask spread.

One more figure of earnings for a broker is the spread between bids vs. asking price. While trading for smaller accounts, the prices quoted by liquidity providers are sometimes not suitable for brokers since they tend to prefer minimum bids such as those of 100,000. Therefore, in such a case, a broker may decide to maintain a standard arrangement for official records.
On the other hand, they could also bid one of their clients against another to benefit from the spread among their respective bids and asking prices. Moreover, to encourage mutual communication within the market, some brokers may also make room for bigger patrons to request direct order to their desks. This offers more of a personalized experience and may make it easier to sort out potential queries and issues.

Advantages and Disadvantages of Non-Dealing Desk (NDD) Brokers and Dealing Desk (DD) Brokers

Brokers that work on a non-dealing desk mechanism probably take the cake when it comes to smaller spreads between asking prices and bids. This is because they can rely on the ECN system and their links with top tiers and similar liquidity providers to offer the best possible prices to clients. This spread may vary as liquidity providers quote different prices, but it does not cost an additional commission.
There is still some disagreement regarding the opposing interests that clients may have to deal with having a DD broker. However, it is not necessary that either party, i.e., the client or the broker has to lose money while the other is getting profits. This is because it is possible for the broker to link a client’s order to a suitable order from another client.
Now, the comparison between a DD and NDD simply serves to provide widespread access to the best bid spreads, that can reach as less as 2% or as high as 5%. There are some moral conflicts surrounding the use of dealing desks. However, this is still several advantages to using a dealing desk system. The Forex market seems to be the most regularly overlooked part of the stock market. So much so, that it is considered to be the most primarily unregulated sector of the international financial and stock.
The reality of the situation is that this does not seem like it is probably going to change shortly. However, it is also a known fact that even the most highly controlled financial market places are most commonly regulated by stock exchanges.
This further allows for more detailed oversight, supervision, and auditing. It is important to address that there is a need for more investors to be involved in the stocks/bonds sector to stay sheltered. This is because these particular tools are regarded as highly potent factors to protect and preserve national institutions such as the institution for retirees, provision of pension finances, and similar investors similar to those above.

Therefore, we have observed a certain set of values and changing mindsets about these particular markets. It is still true that there are a lot of misconceptions and confusion surrounding these types of brokers, and the trading sector in general. However, the best course of action is to stay informed and avoid forming opinions based on previous biases.
Even though one type of trade or broker might seem better right off the bat, it is important to keep an open mind and understand your own trading needs before making a decision, because certain types of brokers are better suited to certain trading accounts. Therefore, it is best to keep an eye out for any changes in the coming years.
So on the end when we talk about do Forex brokers really trade against on their clients – we need to know to recognize Non-Dealing Desk (NDD) Brokers from Dealing Desk (DD) Brokers !

What is the difference between a brokerage and a mutual fund?

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Answer: Main difference between a brokerage and a mutual fund is that brokerage accounts are utilized when an investor decides that he/she wants to buy, hold or sell securities and mutual funds are collective investment securities.

It is important for new investors to learn the main differences and similarities between mutual funds and brokerage accounts prior to investing. Each approach to investing offers its own advantages as well as disadvantages. The following will help to better understand and choose the best approach that is right.

What are Brokerage Accounts?

Like we see, Brokerage accounts are utilized when an investor decides that he/she wants to buy, hold or sell securities (stocks, bonds, etc.). There are a couple ways the investor may open brokerage accounts. Conventionally, he/she can use a full-service firm or with an online broker. Furthermore, a brokerage account can have two types of ownership: individual or jointly.

What are Mutual Funds?

Mutual funds are collective investment securities. They group together the assets from various investors to build a single portfolio managed by a professional. Additionally, a mutual fund can be used for investing in cash, bonds, stocks, or a mix of these type of assets. For instance, one way to remember a mutual fund is similar to a bucket holding anywhere from a few holdings to hundreds.

What are similarity and difference between a brokerage and a mutual fund?>/h2>
Although different types of investments, mutual funds and brokerage accounts still have several similarities. While they may be subtle, it is important that investors have a full understanding of them.
Below are the main similarities:
Taxation
While the similarities of taxation are slightly different between mutual funds and brokerage accounts, there are some important similarities to know about. First, any dividends and interest are taxed like regular income. Additionally, the capital gains are taxed as well.
Flexibility and Diversification
Both mutual funds and brokerage accounts have the ability to offer a wide diversification, meaning an investor can hold multiple types of securities in each investment approach. Although, the diversification range is decided by the investor. A brokerage account provides investors the option to hold various types of securities, but it is up to him/her to diversify or not through multiple investment goals or asset types. Meanwhile, mutual funds have the option of being narrow, or greatly diversified. Therefore, investors have the option of investing within a single mutual fund, or several.
Professional Management
When a brokerage account is bought from a full-service style brokerage firm, there is typically an option to have the account(s) managed by a professional. Therefore, allowing an advisor to make recommendations, or a broker to buy/sell the securities on the investor’s behalf. A mutual fund can be managed professionally as well, but there are some that are passively managed, including index funds.

Difference between mutual fund and brokerage account

The following differences will help determine which investment approach will work the best.
Opening Minimums
When first opening brokerage accounts, investors do not have an initial fee. However, with mutual funds it is common to have an upfront cost in the form of investment minimums. Depending on the broker used, the minimum can range greatly, from $100 to more than $3,000.
Functionality
This could be the largest difference between the two types of accounts, and a key deciding factor, how they function.
Brokerage accounts are accounts which hold the investments made in a single, easy to manage location. Meanwhile, a mutual fund is not an account, but allows the investor to hold securities within another account. Securities within a mutual fund can be from a 401(k), IRA, brokerage account, variable annuity, even straight from a mutual fund company.
Future Fees
Depending on the approach used, the ongoing future fees may vary. For instance, brokerage account fees are mainly that of the trading cost, including commissions or transaction fees. When going through a broker, the commission rates are usually more than if the investor using a discounted broker. Meanwhile, there will be additional fees attached to mutual funds, including called loads with a sales charge, or there are options for no-load funding without a sales charge. Although, there will be an ongoing cost for every mutual fund as detailed within the expense ratio of the fund, usually averaging 1.00%.

Final Thoughts

When comparing the differences and similarities between mutual funds and brokerage accounts, it is easy to see how the two approaches are related, but clearly have two different purposes and uses. Whereas, the brokerage account is used for holding all the investments. Meanwhile, mutual funds are an investment on their own.

However, investors are able to hold mutual funds within his/her brokerage account for easy portfolio management.
Wanting investment flexibility that allows for various security types? Opening a brokerage account may be the best approach to use. If minimums are not an issue, the best approach is directly investing within a no-load, low-cost mutual fund company, such as Fidelity or Vanguard.

Difference between microfinance and commercial bank

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Microfinance institutions all begin with value capital. Aid organizations, depositors and banks all borrow them money. They borrowed according to their ability in terms of payback schedule, amount and interest rate without going beyond thresholds risk put up by conglomerates of lenders, board of directors and managements, also not breaking regulations set by local banking. Microfinance bank own divisional offices that being headed by credit officers who have cordial affairs with members of the community to deliberate on microfinance institutions products loan with them. They also take back interest and major payback if those that borrow money must pay back in cash, which they have no means to take it to the divisional offices. The head office and marketing department are the determinants of the loan approval processes. Which is subsequently implemented by the marketing department, department of operations, credit and product department at the head office, divisional office staff inclusive.

There are MFIs that are non-profit oriented, but these are just exception not norm. Although many MFIs kick off as non-profits later transformed to for-profits. Investors are profit motivated such are MFIs owners. Sometimes socially motivated funds are used by the owners to make investments, not always though. Large MFIs heads such as CEOs, COOs and CFOs are in mindsets similar to the managers of same sized banks in country like U.S or another country. They give back value to shareholders through planning to execute plans drafted with the concerted effort of the board of directors. To achieve this there is need to build a profitable, effective and lasting organization that earn respect and trust from its customers, lenders, workers and rural regulators. Some managers do feel concerned on building their countries to create opportunities for their people. While some don’t care. Putting their interest rates maybe thirty percent annually and their motives for profit making, the importance of microfinance is obvious looking at the other options costumers would opt in for if MFIs are not in existence. These other options could be local money lender that lend money at an interest rates not less than 500% per annum.

Highlight here are some factors distinguishing microfinance bank from commercial banks:
(A) LOWER COSTS OF CAPITAL RELATIVE TO RISKS: This can make MFIs more lucrative than traditional banks. Most investors putting their money in MFIs are not only motivated socially but also have minimal rates of return if required social standard are met. Far below market interest rates MFIs borrowed from their lenders e.g. aid organization, or perhaps part of a large western bank. MFIs grows by often taking deposits from their customers, motivating them with huge interest rates of 10% annually on savings account. Unlike FDIC in US, the government of countries where MFIs operate don’t guarantee these deposits. Deposits are attractive to financing independent because it helps them makes provision for financing independent of international capital markets. However, there increased regulation and high cost that often comes with deposit.
(B) NO COLLATERAL: Lending in traditional commercial banks is not unsecured but often secured by assets like land, vehicles, etc. In contrast, MFIs’ lending usually not secure. That is, the borrower’s assets are safe even if they fail to payback their loans, but with a penalty not to lend to such costumer again. Also they may report such borrowers to community leaders or may also lead to social consequence on such community by increasing interest rates on loans by any members of the community. Why didn’t MFIs take collateral? This is because the borrowers are almost poor or at poverty line. Hence it is unutterable by MFIs to investors who are socially inclined or local media.
Furthermore, MFIs jurisdictions legal systems are too feeble to support loan collateral. However, assets lending is not uncommon in MFIs when the loan is meant to acquire specific assets.

(C) GREATER LEVERAGE THAN TRADITIONAL BANKS: Microfinance is often at mercy of central bank compare to other banks in any country they operate. For instance, higher for MFIs than other banks are the maximum asset to equity ratio. A low income individual often benefit from certain percentage of their loans, this also make them to be licensed as MFI instead of a bank. MFI loan size average is usually under certain amount. MFI make access to capital easier for low income earners compare to other banks. This is as a result of their looser capital requirement.
(D) TARGET MARKET: The microfinance target market are low income learners that are not using bank. For instance, peasant farmers or petty traders earning between $800 to $5000 per annum. However, this doesn’t mean they are more generous knowing fully well that they charge these people higher interest rates more than the high income earner in the communities who possess assets that can be used as collaterals. The low income individuals given loans relative to their level of income are not riskier, provided their income is steady.
These MFI borrowers can also be diligent workers in their businesses just like other rich members of their community. They can as well be spurred to give their families opportunities even as they maintain their dignity and reputation in the community.
(E) GROUP LENDING: one of the lending methods in MFI is group lending. A group of individual in a community may come together to secure loans and also acts as guarantor to one another. The idea behind this is if one person could not refund others have to pay back or they all face the penalty of not getting loan from microfinance again. Due to the operating costs that accompany the implementation of this method it yields lesser profits compare to individual loans. However, it is not without benefit, among which are social pressure, also help the community.

Furthermore, MFI also have many players they partner with such as platforms like crowd-funding as well as insurance from micro-insurer. Some sellers of goods do partner with microfinance to boost the finances of their business.

Difference between microfinance and commercial bank by definition

Commercial bank as a financial institution is established based on the banking regulation act. They function solely to accept money and lend money out to costumers. Other functions include brokerage, insurance, stocks, security, etc. All this are non-banking activities. Commercial banks are profit oriented. Among the characteristics of commercial banks are dividends, payment of tax, registration, etc.

Microfinance is not profit minded. The activity in microfinance are done more in a group. Each members of the group have savings, thus the microfinance aims at giving loan to any member of the group. The group ensure the money is being used and the group member earn profit from any income making enterprises they engage in. Each and every member of the group is entitled to loan or perhaps get a loan. This in turn self-sustain the group. Unlike commercial bank, microfinance is devoid of registration, dividends, and taxation.

Difference between microfinance and commercial bank

GENERAL DIFFERENCE
They deal with different costumers in terms of definition. Microfinance render financial assistance and or give loan to low income earners of local families. While commercial banks on the other hand give loan to people and big organizations that open accounts with them. Worth of note is that their difference per se is based on the costumers they deal with not even the magnitude of the loan.

SPECIFIC DIFFERENCE
MFIs basically lend money, funded by private equity holders and or individuals.So, sources of funds for microfinance institutions can different from private equity holders to individuals. Commercial bank offer financial services range from lending, savings to insurance and pensions. Commercial banks are funded through stock markets.
MFIs services are DOOR STEP that is, their staffs take financial services to costumer’s door steps. Whereas commercial bank services are BANK DOOR services, that is, the costumers have to go to bank to carry out any financial services.
Commercial banks loan risk is quite low. Thus, charge lower interest rate ranging from 10% to 16%. This low loan risk is predicated on the fact that they deal with people of high level of income. Contrastingly, microfinance loan interest rate is high say 20%-25% due to the fact that they operate collateral free loans, also the loanees are riskier.
Among other differences are dynamics in manpower, structures of governance, use of or ICT use, physical presence, etc.

History recorded it that in India, commercial banks do not understand the requirements of the local market. This birth the idea of micro financial institutions. They offer financial help to local families of low income that couldn’t transact business with commercial banks. With free collateral loan, they offer financial services to several poor people.

Whereas commercial banks cannot cope with the high risk of given loan to the poor that resident in rural areas whose small loans are hard to maintain in terms of cost. This challenges of commercial banks, microfinance rose to conquer by giving loans to the destitute.
MFIs help the poor in the remote areas to scale up their business by giving them small loans. No provision of other facilities like insurance, cash withdrawal from automated teller machines, credit/debit cards provision, etc. Whereas such services are available in commercial banks. Commercial banks also help to manage costumer cash, give reports on their accounts, etc.

There is no collateral free loan in commercial banks. MFIs give collateral free loans. There’s an extensive scrutiny in commercial banks before issuing out loan. Such scrutiny is not available in Microfinance.
In terms of deposit, some amount has to be deposited to the MFI before they give out loans to any group members. Whereas in commercial banks the depositor is required to pay a fixed rates of interest corresponding to specific amount to be given out as loan

MFIs seek to bridge the gap in the segment of the society not touch by commercial banks which exposed them to private borrowers.
Commercial banks’ lending operation cover areas like renewable energy, Agriculture, housing, micro, small and medium enterprises, education, etc.

They also differ in their approaches to risk management. MFIs manage risk by contacting their customers often. Also train their staff (off-field staff) and customer. Self-deserved as well as imposed risk management system which are advanced are used in commercial banks.
To meet up with their cost and make service available are reasons microfinance charge rates are higher than other banks.
However, the local money lenders whose interest rates can be up to thousands received far above this from people.
The microfinances still face challenges sustaining themselves in the rural areas. A case study that that exposed MFI environment is the Andhra Pradesh microfinance saga.

MFIs are not profits oriented, experts in giving loans to people in local communities, be it group or individual. They are into micro financing and do not lend huge money to customers.

On the other hand, commercial banks do wide range of financial services corporate bodies and individuals. They are profit minded. They offer other financial services like guarantees, savings, credits letter, etc.