From movies such as “Wall Street” or simply from watching the news, everybody knows the dynamic, quick and hectic atmosphere of a trading floor.
This is where the market prices are made and where billions of dollars can be made or lost.
If you want to work here, be prepared for a stressful, high-pressure work environment with potentially very high rewards.
ASSET CLASSES
Once the financial products have been created in the capital markets they enter the secondary market where they are bought and sold by the traders.
The main types of assets traded are shares, bonds, currencies and commodities.
There are also hybrid products that depend on more than one asset class.
Apart from directly trading the assets, you can also trade products that depend in some way on an underlying product. These are called derivatives and they have become increasingly important during the last decade. Some important types of derivatives are:
SWAPS:
contracts under which one party agrees with another that they will ‘swap’ one asset for another.
e.g. a company may swap a variable interest rate for a fixed one.
FORWARDS:
Contracts under which parties agree to buy or sell a particular asset for a particular price at a particular point in the future
Forwards traded over an exchange are known as “futures”
OPTIONS:
Contracts that give a party the option to sell (a “put” option) or to buy (a “call” option) a particular asset at a particular time and price.
SALES
Salespeople are responsible for selling the bank’s products to clients
Their job requires them to call clients from the moment the financial markets open until the moment they close, as well as for several hours before and after.
Clients might be high-net-worth individuals, fund managers and other institutional investors.
Essentially salespeople take orders for financial products and communicate them to their trading desks for execution
Sales professionals begin their day by reviewing everything that could affect the market.
This involves reading financial or general newspapers and catching up with news analysis from the research department
This will be used for generating new trade ideas and consulting clients.
During the day, they might make call their clients to present them new ideas or they might try to acquire new clients.
Once a client decides to buy or sell the product advertised by the salesperson, the salesperson needs to negotiate with the traders to execute the order.
After the markets close, salespeople might call their clients to talk about their investment strategy or they might meet them for dinner or evening entertainment to improve their client relationship.
SKILLS REQUIRED
Need outstanding communication and persuasion skills
They have to be good at selling
They need to be able to approach potential clients and maintain client relationships
They need to be able to build up a good network within the bank to be able to provide their clients with the best possible solutions.
TRADING
Traders are the people who actually buy and sell products on the secondary markets.
They must make quick decisions that can involve millions of dollars and earn substantial profits in the process.
Some traders are responsible for executing direct orders coming from clients or orders given to them by the salesperson within the bank.
They make their money from execution fees.
Other traders might be involved in market-making, which means they have a mandate to set bid (buy) and ask (sell) prices in all market conditions.
They try to make money from the spread between the bid and ask price.
However, this involves a risk since they might not be able to directly sell their positions on the market
Proprietary traders take positions on the market on behalf of the bank.
They attempt to make money with their speculation ideas.
After the credit crunch this area of trading has been drastically cut back due to new regulatory requirements.
RESEARCH
Researchers do not directly act on the market, but instead produce the analysis the traders and salespeople are using for their work
They analyse economic events, political developments and individual companies and publish research reports on them.
Their work is less hectic and more detailed and analytical than that of the traders and salespeople
The main part of a researcher’s work is analysing financial data, writing morning meeting notes, exploring new investment ideas, contributing to internal and external research publications, presenting research to colleagues and clients and maintaining financial models.
This means that a researcher needs advanced analytical and modelling skills, good judgement regarding the market and the ability to articulate their views, because in the end he or she needs to convince traders, salespeople and/or clients.
Research is as much about communication as it is about analysis, so you need to excel at both sides of this if you want to be successful in this area.
In general, research is not directly paid for by the clients enjoying the service, but the banks hope to make money from clients who will trade with the bank and hence continue to get access to the research service.
