New products
Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets.
Throughout the history of investment banking, many have theorized that all investment banking products and services would be commoditized.
New products with higher margins are constantly invented and manufactured by bankers in hopes of winning over clients and developing trading know-how in new markets.
However, since these can usually not be patented or copyrighted, they are very often copied quickly by competing banks, pushing down trading margins.
For example, trading bonds and equities for customers is not a commodity business, but structuring and trading derivatives is highly profitable.
Each contract has to be uniquely structured and could involve complex pay-off and risk profiles, is not listed on any market.
In addition, while many products have been commoditized, an increasing amount of profit within investment banks has come from proprietary trading, where size creates a positive network benefit (since the more trades an investment bank does, the more it knows about the market flow, allowing it to theoretically make better trades and pass on better guidance to clients).
Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets.
Throughout the history of investment banking, many have theorized that all investment banking products and services would be commoditized.
New products with higher margins are constantly invented and manufactured by bankers in hopes of winning over clients and developing trading know-how in new markets.
However, since these can usually not be patented or copyrighted, they are very often copied quickly by competing banks, pushing down trading margins.
For example, trading bonds and equities for customers is not a commodity business, but structuring and trading derivatives is highly profitable.
Each contract has to be uniquely structured and could involve complex pay-off and risk profiles, is not listed on any market.
In addition, while many products have been commoditized, an increasing amount of profit within investment banks has come from proprietary trading, where size creates a positive network benefit (since the more trades an investment bank does, the more it knows about the market flow, allowing it to theoretically make better trades and pass on better guidance to clients).