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Trade life cycle tutorial

Updated March 23, 2017

Most investors have no idea about the life cycle of a trade. This is because they rarely have occasion to work with the middle or back office. The middle and back office are support functions for the front, or sales, office. The back office works on trade settlement and the middle office is concerned with confirmations. All three contribute to the actual buying or selling of stock along the trade life cycle.

Back Office

The back office exists for three reasons: clearance, settlements and accounting. These three function interact directly with external agencies like the custodian (actual holder of the security), the clearing firm (third party) and a commercial bank. The back office maintains external relationships and control functions and is where the trade ends.

Middle Office

The middle office, as the name implies, is a hybrid function between the front and back office. The middle office handles validations (of stock orders), bookings (orders) and confirmations. Technically, these are all back office operations, however, they often require the help of front office staff to resolve.

Front Office

The front office is responsible for trade capture and execution. This is where the trade originates and the client relationship is maintained. The front office makes/takes orders and executions. Traders and sales staff are considered front office staff.

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About the Author

Working as a full-time freelance writer/editor for the past two years, Bradley James Bryant has over 1500 publications on eHow, LIVESTRONG.com and other sites. She has worked for JPMorganChase, SunTrust Investment Bank, Intel Corporation and Harvard University. Bryant has a Master of Business Administration with a concentration in finance from Florida A&M University.