question about taking on risk

[ranald]

suppose a trader at a BB gets an order from a client to purchase some shares of an equity for a fixed price (i'm assuming this is how it usually works and that some bargaining may follow). after this point, how exactly does the trader become exposed to risk and capture profit?

does the trader short the shares so that he can hand them to the client, then ride out and appropriately hedge the position until he is flat? or does he just buy immediately on their behalf, capture a commision, and work out the details later?

i'm a little unsure of the overall methodology the trading desk uses in trying to make a profit from client orders. there seems to be very little information online about how the exact mechanics of a simple 101 trade would work out. any help or links would be greatly appreciated?

 

[Baller]

http://www.sec.gov/investor/pubs/tradexec.htm
Doesn't answer your question really - and it isn't referring to traders on the trading floor. Nevertheless, a small informative piece on how brokers work..

 

[Yike Lu]

Depends on the style of brokerage - agency or principal. The link above has some info on retail brokering, but institutional brokers are more diverse.

Principal brokers take the other side of the trade, so profit from charging you a worse price or speculating against your trade. Agency brokers work purely on commission. Many brokerages do both.