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Making an Investment Bank Run

Most investment banks used to make money the old fashioned way: they would get investors to deposit money with them, have traders analyze the most promising stocks, then invest the money and share the profits when the stocks were sold later. Today’s investment banks, however, are run on computers that operate with lighting speed and incredible precision, using enormous sums of money to buy shares before selling them seconds later for a few cents more. These tiny transactions — repeated hundreds of times each minute — add up to billions of dollars in profits for investment banks.

Making sure these transactions go smoothly is the job of an investment bank’s operations division. While the operations team does not make any money, its job is crucial in supporting the traders who buy and sell stocks.

What Operations Does

Operations at another company might be called “the IT guys.” Investment banks, however, do not just buy computers: they buy massive supercomputers that perform trillions of calculations each second, and they send that data whizzing around the globe with fast servers that pump out information as quickly as possible. The operations division makes sure that information gets to traders as quickly as possible. Stock prices now fluctuate fractions of a penny each second, and a delay of even a single second could cause a trade to go from making a profit to losing money. The faster these computers go, the easier it is for traders to make money off momentary changes in stock prices.

This can be accomplished in several ways. The operations division is always looking for ways to get trade orders moving faster from traders to the stock market, then getting the buy or sell confirmations back to the traders more quickly. Even improving the speed by a fraction of a second could result in hundreds of millions of dollars in profits added up over the course of a year. Operations employees also try to speed up their computers processing power — the complicated algorithms that determine when stocks are bought or sold operate more efficiently as they receive and send information more quickly. Being able to process more trades each second means more total trades in a year — and that leads directly to higher profits.