Careers in Financial Trading

Buy-side, Sell-Side & Hedge Fund Jobs

Much has been said about a trader’s risk-taking appetite but, perhaps, not enough about how important it is to use restraint while taking split-second decisions on the trading floor.

After all, in this career track, we are talking about how millions can be made – or lost – in the blink of an eye.

Yes, traders are a special breed. But before we get to that, let’s see what this sub-group of finance specialists actually does.

Very simply, financial traders buy and sell securities – stocks, bonds, commodities, currencies or other financial instruments – on behalf of their clients.

He or she is literally a middleman between the investing public and entities such as companies and even governments who are selling a variety of financial instruments.

So how does a trader differ from a broker, you know, the guy you call when you have a hot tip on a stock or when you’re in the mood to play the markets?

It’s simple. While a broker executes trades on behalf of their clients (yes, the guy you call when you have a hot tip), a trader does not directly interact with the investing public.

He or she is employed by an institutional investor, such as a commercial or investment bank, an asset management firm, a portfolio manager, mutual fund, hedge fund etc, to make money for their clients. The aim is always to maximise profits while minimising financial risk.

Careers Paths of Traders

Depending on the type of employer you have or what your specialty is, being a trader can be exciting or super exciting, creative and powered by an adrenaline rush. There are many types of traders but here are the three broad categories:

Sell-Side Jobs

Traders who deal with the creation, promotion and sale of financial products work on the ‘sell-side’. These traders usually work with investment banks, where they initially learn the ropes in one product area before moving on to another.

So, for instance, such a trader would specialise in equities, commodities or fixed income products. He or she may further specialise within a category and deal only in, say, pharma stocks or treasury bonds.

In a smaller bank, however, the scope for specialistion is less and the trader gets a broader range of experience in pitching and selling financial products.

Buy-Side Jobs

This is the flipside of the market and comprises investing institutions such as asset managing firms like mutual funds, pension funds and insurance companies.

These are entities that purchase very large chunks of securities, to make profits on behalf of their clients, the individual investor.

Traders in institutions like these have much less leeway than their sell-side counterparts as they often execute instructions issued by their superiors such as a portfolio manager.

Hedge Funds

Working as a trader for a hedge fund is considered the most exciting and sought-after career profile in for a trader.

Again, depending on how the fun operates, a trader here could either end up taking instructions from a portfolio manager or be allowed to use his or her own discretion to buy and sell on a proprietary basis.

If you’re talented and keep your head on your shoulders, you could end up making up obscene sums of money.

Talented and ambitious hedge fund traders eventually cut loose and open their own hedge funds. The risks are huge and the rewards even bigger!

Soft Skills Of A Financial Trader

While this might sound like a contradiction in terms, it is also the most basic requirement for any trader – staying on top of the markets.

The trader not only has to be clued in to local as well as global markets, they have to be plugged in, in real time.

They also have to liaise with customers while the markets are open, keeping them apprised of market cues, advising them on buying and selling options while selling securities on behalf of clients.

Hence, the classic image of a harried trader simultaneously talking on multiple phone lines while gesticulating wildly and staring at a blinking computer monitor on the virtual trading floor. Phew!

Sure, traders are in it for the thrill of the ride but they must also have the ability to think on their feet. They should be able to stand their ground and not panic even when the markets move like a roller-coaster gone rogue. They must possess superior communication skills to be able to sell financial products and convincingly explain what’s hot and what’s not to prospective customers.

Naturally, this means high tolerance for stress, extreme patience and, oh, let’s not forget, unwavering integrity. The money that changes hands every day is so much that temptation is always around the next corner!

Educational Qualifications Of A Trader

Brokers come from varied backgrounds. You don’t need a special degree to hone your financial acumen to become a broker.

Why, there are a zillion home-grown experts who trade online from the comfort of their homes.

But if you want to make a career as a trader – besides making a pile of money online! – you will need a college degree, preferably in finance, accounting, economics or business administration.

A Master’s degree in the same would instantly brighten your prospects of being hired by an investment firm, investment bank or mutual fund, and your remuneration would also climb exponentially.

As far as certifications go, in the US, traders usually take the Series 7 and 63 exams, while in India, it is advisable to take the NISM (National Institute of Securities Markets) examination.

Salaries of Traders

Salaries for traders start at $70,000 at entry level and go up to $200,000 after a few years, when you earn your stripes as an associate trader.

If you work in the much more lucrative derivatives, you would expect to earn considerably more. On the other hand, proprietary traders, who trade with their firm’s own money, usually receive a bonus proportionate to the profits they make.

Outlook For Financial Traders

The lucrative pay packets, bonuses and other incentives that come with the territory are meant to compensate for the highly stressful job and the risks that a trader takes.

Moreover, the capital markets have grown more turbulent than ever in recent years, making the already challenging job of a trader even more exacting. Make sure you are cut out for this career track before jumping in.

But if this is your cup of tea, here’s something you need to know: the Bureau of Labor Statistics in the US forecasts 9 per cent growth in this sector, between 2012 and 2022. That’s about the average for all jobs in the financial services sector in the US.

Competition is intense, not only because this is a high-profile career track but because there are always many more applicants than there are openings.