How a Trade Goes Down

A normal desk on the trading floor has salespeople on one side and traders on the other. A trader tries to link buyers and sellers of stock, otherwise known as creating markets, and is connected to other traders everywhere. The salesperson actually talks to the clients.

Someone from a hedge fund contacts a saleswoman on the tech desk at Wachovia, for example, and asks what kind of market she can get him on $1 million in shares of IBM stock. Throughout the day, IBM trades anywhere from $124 and $126 a share.

The saleswoman looks up and relays the question to her trader, who might know of another trader at Bank of America looking to sell $1 million in IBM stock for $125.10 a share. The trader tells the saleswoman he can give her a market of $125.12 share. If the hedge fund takes it, the profit for the saleswoman and trader is two cents a share.

Multiply that by a million, and you've got a cool $20,000.

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