We spoke to a seasoned credit trader about what life is really like in his chosen profession. This is what he told us.
Q: How long have you been a credit trader?
A: I started in credit trading after the bank’s graduate analyst 10-week bootcamp (which started a month following the end of my undergraduate degree). All in all, I’ve been trading for 8 years and trading my own book for seven years.
Q: And how did you start out?
I started at the very bottom. My first responsibility was reading research and highlighting salient points, reading and checking documentation, risk analysis. Finally after about 9-months I was allowed to trade in a senior trader’s trading book. Having proved myself there, I was given my own trading book 9 months later.
Q: What does it take to get through the graduate recruitment process for credit trading positions?
I experienced some very different graduate recruitment styles at different banks. Fundamentally, you need strong academic credentials and some extracurricular activities which will demonstrate to those reading your application (before you meet) that you aren’t a bore.
Once in the interview you need to demonstrate initiative and some charisma. Anyone applying to an investment bank has intelligence, but I found only a few have the “polish”.
On a final point, to get the role you want you must have tenacity – even if HR try to convince you M&A’s your thing, don’t listen. You need to know the area you want to work in and to push for that.
Q: So what exactly does a credit trader do?
Any trader is a risk manager. But a good credit trader is also part accountant, part lawyer.
He or she must be able to analyze corporate financial statements without relying on research or rating agencies (ratings agencies should simply augment an existing viewpoint or add further details; they should never be relied upon).
Legal knowledge is required to understand the legalese and financial language in bond prospectuses and regulatory rulings.
The legalese and financial language in bond prospectuses and regulatory rulings is where the lawyer part comes in useful.
Q: But.. can you elaborate further on precisely what the job entails?
Well…the trading element of the role is about judging the credit-worthiness of corporate institutions (companies) or sovereigns (countries). Credit worthiness means the likelihood that they will default and fail to repay their debts.
Once you’ve worked out how likely it is that a company or country will default, you can ‘bet’ or trade on that using all kind of financial instruments. These might include bonds, loans or credit default swaps.
Q: Is trading credit more or less interesting than trading equities?
More. Credit is the most heterogeneous of the major financial product types (rates, equities and commodities). There are very few fixed standards and each bond issue has its own terms. These terms cover anything from geographical jurisdictions to what happens in the event of specific outcomes (eg. What happens to the debt if the company issuing it merges with another).
Most bond prospectuses are huge – 200 pages or more. This makes it difficult to immediately calculate what will happen to the repayment of the bond if certain things happen to the issuer. Because of this, credit has a depth that doesn’t exist in other product classes.
Q: So, what happens on a typical day?
I’ll wake up around 05:30 and be in the office by 06:50. As the market is over the counter (OTC) there are no fixed trading hours, although the first stirrings of activity generally starts at 07:30. By this time, we’ll have had a sales and trading meeting with highlights from research and a chance to talk to colleagues in Asia. Things get busy around 08:30 and continue until 16.00.
Q: Can you quantify busy?
Well, throughout the day I’ll have thousands of Bloomberg messages on my screen. I’ll also have messages from our syndicate desk, from other traders in the bank, and requests from sales and clients.
As the day goes on, there will be breaking macro and corporate news that I need to keep up to date with, and ad hoc research being published.
Around midday, the product controllers (kind of accountants) will visit the desk with the previous day’s profit & loss for me to sign-off (or contest).
I generally leave around 6:30 or 7PM, but will stay if there’s work to do.
Q: Is there ever any ‘fun’?
Once a week there will usually be a client event where someone from sales will wheel me out in the evening to meet clients for three hours or so. There’s also normally be a broker event, which also involves wining and dining, on the interdealer brokers’ tab. Here, you are taken out and wined and dined at their expense while they try to convince you how they can get more and better prices than all their broker competitors.
Q: So, what next? What does a career in credit trading equip you for?
Hmm. That’s a little more challenging. Unlike the universally applicable qualities of a salesperson, traders have very few fields outside of trading. At a stretch, you could perhaps go onto the syndication desk and deal with the actual issuance of the debt, or maybe you could go into counterparty credit risk analysis and work out the likelihood that the companies issuing debt will default.
Generally, however, it’s a choice between working as a credit trader on the buyside (investors and asset managers) and the sellside (in an investment bank).
Q: What about trading your own money in a ‘prop shop’
That’s not really an option. Within credit trading the opportunity to work in a prop shop or trading arcade is highly constrained. You need a lot more money upfront than if you’re trading equities.
Q: And, what about the pay?
It’s good. The mean average pay for a salesperson will be higher than a trader but the top traders will be able to far exceed a top salesperson. No one’s going to be making £25k.