Every day, millions of financial products are bought and sold in the secondary markets where traders and salespeople in investment banks work together to trade for clients after a security’s initial issue.
In the secondary markets, salespeople advise clients on investment opportunities, while traders buy and sell securities on their behalf.
The secondary markets are divided into equities (stocks and shares) and fixed income, currencies and commodities (corporate credit, government debt, currencies, commodities and interest rate products). Within the fixed income division is the foreign exchange (FX) team. The FX market is the largest in the world, with an average daily turnover of $4 trillion, according to figures from the Bank for International Settlements.
High volume markets like FX and equities have become increasingly traded electronically, rather than using manual intervention. The benefits are greater volumes of trades, which improves market liquidity as well as increasing the speed and cost of transactions, and increasing transparency. The downside is that less manpower is required and trader headcount has fallen dramatically in recent years, while employee numbers in the technology divisions have risen. JPMorgan, for instance, employs over 30,000 technologists globally, while a quarter of Goldman Sachs’ staff now work in an IT role.
There is also a range of ‘exotic’ derivative products within all these sectors, whose value depends on the underlying security.
Salespeople advise their clients when to buy and sell securities. They usually focus on particular products (e.g. government bonds) and clients, whether that’s high-net-worth individuals, pension funds, other institutional investors or corporate finance managers. Salespeople take orders from clients, from the moment markets open until they close, and communicate them to the trading desks for execution.
Traders track the markets and buy and sell products at the touch of a button. Your career will be defined both by what you trade (e.g. equities, foreign exchange, or commodities) and by the kind of trader you are. There are several types.
‘Flow’ traders buy and sell financial products for a bank’s clients, while proprietary (or ‘prop’) traders trade the bank’s own money. Historically, prop traders were at the top of the trader hierarchy but many banks have reduced their prop trading activities following regulatory crackdowns like the Dodd-Frank act in the U.S.
‘Execution’ traders place trades for analysts and fund managers – the key is to be both quick and accurate with the software, as well as deal with any problems should they occur.
There are also sales-traders, who act as an intermediary between sales and execution traders, and develop new business for the bank. They quote prices, take client orders, advise on the timing of the trade and execution method. They are seen as key revenue generators, and good client relationships are key to the job.
Within the electronic trading teams, you’ll also find quantitative analysts, who design, develop and implement execution algorithms using a mathematical approach to identify investment opportunities and strategies. Consultants, meanwhile, run statistical reports including transaction cost analysis and trade reports, to ensure clients are using trading tools effectively.
Within the sales and trading division, graduates are also recruited into structuring and marketing roles. It’s the former’s job to create financial products and provide a pricing service to clients. It’s the marketer’s role to search for new opportunities to sell these products, and prepare marketing materials and pitches.
The exit opportunities for traders are not as broad as for advisory investment bankers. More recently, as regulation has curbed banks’ abilities to run prop trading desks, a large number of prop traders with an audited track record have attempted to make the switch into hedge funds, but the competition is stiff.
Failing this, traders often start trading on their own accounts, assuming that they’ve made enough money during a well-remunerated career in banking to allow them to do so. Or, if they have the right connections, some have moved on to trading money for ultra-high-net-worth families through their ‘family office’ structure.
Traders need a keen sense of risk and reward, an understanding of the dynamics of the markets and an analytical mind. If you’re trading complex derivatives you’ll need the mathematical ability to understand the products. If you’re trading non-complex, ‘vanilla’ products, you’ll need to understand what drives the market. FX and equity traders in particular are news junkies, able to connect both connect the dots across a broad range of data and understand the implications of world events on markets.
“The ability to work under pressure in a fast moving environment to assimilate information quickly in order to react quickly to market changes and sharp attention to detail to operate efficiently with strong risk management skills whilst multi-tasking are a must for a successful career in trading,” said Danielle Sindzingre, global head of fixed income, credit and currencies, SG CIB.
Understandably, if you have a desire to work in sales, it’s safe to say you shouldn’t be a shrinking violet. You must also have a thick skin – only a small percentage of approaches to clients result in a successful sale, so you must be able to persist in the face of rejection.
“You must be true to yourself, find the communication style that you are comfortable with and use it to gain clients’ trust and to build your network. You must be able to do this with the highest level of integrity,” said Joe Squires, co-head, rates sales Europe at BNP Paribas.
“To be successful in sales, individuals need to possess superb verbal and written communication skills with a proven ability to develop and build relationships both internally and externally,” added Sindzingre.
Most quants in electronic trading come armed with a PhD in a mathematical subject, and have a good understanding of computing software and programming languages like MATLAB and C#. Anyone working in e-trading needs to be able to keep up with the constant, and fast-paced, rate of change and be versatile enough to adapt.