What You Actually Do In Sales & Trading, Part 2: Equity Trading

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While there are plenty of day-in-the-life and week-in-the-life stories detailing what you do in investment banking, there’s surprisingly little information on sales & trading.

We started to fix that problem by looking at what you do in fixed income – besides bankrupting your firm and causing the economy to spiral into a bottomless abyss.

This article will continue that thread by telling you all about equities, the second major area within trading.

Once again, Jerry’s the expert and the author here, so direct all questions to him.

Quick Recap

Trading is divided into groups depending on whether or not you have clients or you’re making your own decisions – agency trading and prop trading, and then the gray area of flow trading in between.

And then it’s also divided according to what you’re trading – stocks, bonds, currencies, or derivatives of those.

Originally Fixed Income was supposed to mean only securities that involved debt, but these days FX and commodities traders are often put under the umbrella of “Fixed Income” as well inside investment banks.

Similarly, “equities” originally just meant trading stocks of companies, but these days it has expanded to cover a couple different areas.

So let’s delve in and see what you do in equity trading besides gambling, eating junk food, and abusing interns.

Agency Trading

This is the most basic type of equity trading: you work at a sell-side financial institution, like a large investment bank, and you execute orders for clients throughout the day.

You don’t make decisions on what or how much to buy – you just take what the client wants and you make it happen.

Why do they need to go through an investment bank just to buy or sell stocks? Couldn’t they just use E*TRADE?

No – because of the size of the transactions.

Let’s say that a mutual fund wants to buy 1 million shares of Microsoft – if that order were placed immediately, it would be too big for the market to absorb and it would disrupt the share price by quite a bit if they attempted to buy all 1 million shares at once.

So it’s your job to divide this into smaller pieces and buy a portion at a certain interval throughout the day, or through another period of time – usually you follow a fixed schedule for buying the stock (e.g. every 20 minutes).

The only thing you control is how to vary the order timing and order routing – if you work in the US you have more control over these variables because of the sheer number of ECNs (electronic communication networks) and dark pools. In other markets you don’t have as many options.

Pros: If you’re interested in trading but you’re not quite ready for more advanced jobs, this could be a good fit to get your foot in the door.

Also, the work hours are much shorter than most other jobs in finance: you might arrive right before the market opens and leave right after it closes; there’s not much analysis to do since you’re not making your own decisions on what to trade.

Cons: The job itself can be boring at times, and you don’t have many exit opportunities. Also, more and more agency traders are being replaced by automated trading algorithms over time.

Proprietary Trading – Plain Vanilla Equity

Plain ol’ stocks. As cool as “synthetic collateralized mezzanine bespoke hybrid exotic derivatives structuring / trading” might sound as a job title, there are still plenty of benefits to being a normal stock trader.

This is the opposite of the agency trading discussed above, because you’re making your own trading decisions and there are no clients.

You don’t have to deal with too many logistical or IT issues that come with trading over-the-counter instruments, and the market liquidity is excellent in developed markets – so you don’t have to worry about not being able to exit your positions.

Bid/ask spreads are small, trading fees are low, and if you make a mistake you can even undo your trade immediately without much damage. (Note: the Obama administration is currently considering implementing a trading tax that may slightly increase the costs of trading)

The only problem is that there are so many market participants that it’s very difficult to find great trading opportunities that everyone else has missed.

Usually you focus on a specific sector and you hold positions for a few days to several weeks; you normally do both micro- and macro-analysis, though there are some traders who ignore the fundamentals and just focus on technical analysis.

You don’t need to be a rocket scientist to do the job: you just need to be good with numbers and a quick decision-maker.

Pros: More interesting work than agency trading; better exit opportunities within trading; potential to make more money than agency traders.

Cons: Hours tend to be longer, especially if you need to do a lot of analysis; you could argue it’s still less “interesting” than trading more exotic securities.

Proprietary Trading – Equity Derivatives

There’s a smorgasbord of derivatives based on equities, but here I’ll just focus on the most basic one: options.

They’re generally riskier than plain vanilla stocks and require more skill to trade: the bid-ask spreads are higher, there’s less liquidity than with stocks, and any one stock could have a few dozen different options with different strike prices and maturities.

There are also more inputs in valuing the options: just as one example, you need to decide what measure of volatility to use, which makes the task considerably more complicated than just valuing the underlying stock.

The coolest part about options is that you can make a LOT of different types of trades.

One common example is a straddle – buying a call option and put option at the same strike price, which gives you a positive payout if the stock moves up or down past a certain amount by maturity.

Even the names themselves sound pretty creative: besides the straddle, you’ve also got the butterfly, the iron condor, and the strangle.

You can also come up with all sorts of crazy payout profiles of your own by combining options and plain vanilla equities.

Leverage is also built into options, so you can easily quadruple the money you put into one stock option: the risk management department would never let you put most of your money into a single option, but even trading smaller amounts of money gives you an adrenaline rush with options.

Even though more math is required, you still don’t need to be the next Isaac Newton to trade derivatives: being able to derive the Black-Scholes equation from Ito’s Lemma isn’t necessary.

However, you do need to understand the Greeks – how an option’s price responds to changes in time, interest rates, volatility, the underlying stock price, and more. You also have to be good with Excel because you need to make more calculations than plain vanilla equity traders.

Pros: More “interesting” and quantitative than plain vanilla equity trading; you can be more creative in devising your own trading strategies.

Cons: Again, hours are longer than agency trading; more quantitative ability is required; as you move up and become more specialized your exit opportunities also narrow.

Algorithmic Trading

No, I’m not talking about the trading robot here (please don’t fall for that scam).

Also known as algo-trading or program trading, in algorithmic trading you don’t actually trade anything yourself: you just program a computer to trade for you based on technical analysis, market volume, or even parsing news headlines.

To do this, stock analysts need to look at historical market patterns, programmers need to implement the system, and everyone else needs to use, monitor, and configure the system.

Sometimes algo-trading is 100% automatic, but it can also be combined with human trading.

Some hedge funds do 100% algo-trading and have performed well – but ever since the financial crisis and the onset of apocalypse in the markets, many previous market patterns stopped holding true.

The result: trading algorithms that had made a lot of money in the past started losing money and thousands of hedge funds and trading firms collapsed.

That’s not to say this is a “bad” field to go into: it’s just that the financial crisis made it necessary for trading algorithms to change their assumptions, and that may mean more challenges for those designing the algorithms.

When people say algo-trading, you would normally think of proprietary algo-trading – but there’s actually agency algo-trading as well, which focuses on how best to execute a client’s trades.

If you’re coming from a highly analytical or IT background, you like working with data, and you want the thrill of huge trading profits without having to stare at charts every second, this could be a good option for you.

Pros: What could be better than machines making money for you when you’re not even there? Also, this is a good option if you’re from a more technical background and you want to move into finance. Since there’s analysis and programming, you can also exit to non-finance jobs more easily.

Cons: Financial crisis will present new challenges for trading algorithms; also, a lot of the work in actually creating the algorithms and sifting through data can be rather tedious.

Exit Opportunities

Not too much is different here vs. fixed income: you either stay in trading at an investment bank, or you move to a hedge fund or prop trading firm.

Or if trading is not for you, you move to a different industry.

If you haven’t been in the field too long then it’s possible to move over to investment banking or others in your bank – but if you start out a hedge fund or prop trading firm, your mobility is more limited.

All of the above is true for the same reason it’s true of fixed income: your skill set is more specialized than, say, an investment banker’s, and on paper most of what you do doesn’t seem relevant to other fields.

Coming Up Next

Sales & Trading vs. Investment Banking and some day-in-the-life stories.

About the Author

graduated from Stanford, worked in equity research and trading in Japan, and then started and sold his own prop trading firm in China. He then attended both Yonsei University in Korea and The Lauder Institute at Wharton, graduating with an MBA. He currently works as a Financial Analyst at Google in Tokyo, Japan. You can read an interview with him here.

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150 Comments to “What You Actually Do In Sales & Trading, Part 2: Equity Trading”

Comments

  1. LLcJ says

    I’m glad you’re doing more s&t stuff!

    I have a few questions;
    - Any other websites/blogs similar to yours/management consulted’s with a more s&t focus? In particular, where can I find more about sales?
    - What are sales exits ops like?
    - Is working in sales (or even trading), getting an MBA then moving into industry realistic (I mean senior, well paying jobs with a realistic shot at c-level future)? What about moving into management consulting?
    - As an Australian uni student, am I competitive for NYC/London based grad programs in s&t or even m&a? Is starting in Sydney then internally transferring a better idea?
    - here in Australia we have “GS JBWere” as opposed to ‘normal’ GS – if I were to work at GSJBW, would this limit my internal transfer opportunities? Do you have any knowledge as to what the difference is?

    Thanks

    • says

      Not any blogs that I know of for S&T / sales. Sales exit opps – the main one is going to other sales roles, at say a F500 company. Hard to move into more technical finance roles.

      You could do sales to MBA to industry, but I don’t know that the MBA is 100% necessary. Easier from sales than from trading. Consulting is possible as well – in that case an MBA probably is necessary.

      It would be tough to go to NYC/London initially unless you have great connections – starting locally and transferring is a better idea.

      I’m honestly not sure of GS JBWere because I don’t know what the relationship is – maybe some other readers will be able to answer that one.

  2. Student says

    Hello,

    I have a off-topic questions..What are the paths and what do I need if I want to become a hedge fund manager and start my own hedge fund ?? can you give me more details about it?

    thanks

    • PrepNY says

      i can answer this one for you. there is no “the path” like there is to PE for example. simply you need to be a very succesful prop trader (at IB, prop shop, market maker) and find enough ppl who trust your ability as a trader to invest in you. starting a hedge fund is a bit like starting a business. what if someone asks you “how do i start a business?” – well there is a million ways to do it. i can only tell you the ingredients you need:rich’s ppls financial commitment, amazing trading ability, a winning strategy for your fund. so i guess if i had to give you a “path” it would be like this: establish reputation as trader and develop serious expertise -> develop an investment strategy to start your hedge fund on -> sell yourself and your strategy to rich people -> start hedge fund.

      • Sofi says

        I’d also like to add that there’s many different HF investment strategies. Don’t think that trading is the end-all and be-all of everything. You could do very well in a fundamentals-focused HF if you’ve done IB or ER work, and you could do well in a distressed HF if you’ve done restructuring work. The key is to be very familiar with and excel at your core underlying strategy. Once you establish a reputation as a trader/analyst/whatever you want your strategy to focus on , then yes, you can follow the steps mentioned by PrepNY.

        • Student says

          Thanks for both of your comments, so.. in order to become a hedge fund manager. I will have to become very familiar with all kinds of different investment products. Then gain reputation by helping my clients earn alot of money?

  3. PrepNY says

    howdy

    i am interested in sales in HK. i don’t speak chinese. the trading floor in HK is entirely english, but clients may perfer chinese speakers? can i work in sales in HK w/o speaking chinese? what about if i learn an easier SEA language?

    • says

      Clients may prefer Mandarin speakers for HK if you do Sales there – for Trading language skills matter less. There are no “easy” Asian languages. :)

      • Q tips says

        I can speak Mandarin/Canto and am a native english speaker. Math is not my strongest ability. would I be a good fit for sales? vs. trading?

        thanks!

  4. TY says

    This is a bit unrelated, but do you happen to know anything about F100 Finance Rotationals at top tech companies (Google, Apple..etc) ? Are there any potential “exit opps” ? And would you recommend taking those over big 4 accounting?

    • says

      I would take them over Big 4 accounting. Basically you get good hours, lower pay than banking, but very difficult to advance. Exit opps would be trying to move back into finance (hard), going to business school, or starting something on your own.

  5. UC Davis MBA? says

    I got into UC Davis MBA and also an offer from boutique investment banking firm as an analyst.

    what would you do if you were in my shoe?

  6. Gatorade says

    Is it just me or are all BB S&T applicants much less qualified than their IBD counterparts? The rounds are all fit and people have 3.0′s to 3.3 gpa’s and a lot from nontargets. Is this normal?

    • says

      I don’t really think that’s true, though in a poor market S&T may be even less appealing and therefore attract some with lower GPAs.

  7. Sean says

    I have been outta school for about a year now working at a fund as an analyst for the past 5 months. I am really interested in getting into Institutional Fixed Income Sales (particularly MBS)…how would I go about to get a position like that? Do you recommend I gain some analytical knowledge for another 2-3 years then maybe try to pursue Fixed Income Sales thereafter?

    • says

      I would make the move sooner rather than later – harder to switch the longer you’re out. The usual networking tactics apply – friends, family, co-workers, clients…

      • Sean says

        Are alot of firms looking to take someone that is pretty fresh out of school (given that I only have about a years worth of experience)? From what it seems, it looks like most people in Institutional Fixed Income Sales (MBS/ABS) are more experienced — wondering how they got their start there.

  8. L says

    Great article as per usual.

    You don’t really cover in depth the actual trade transaction. If you can possibly write an article or fill me in on how a trade happens by giving numbers? Some sort of simulation? Can you also give a situation where the trader loses large amounts of money? Many thanks!

  9. CHI says

    Regarding to the visa issue for international students.

    If I need a bank sponsor work visa for me, will this requirement become a disadvantage to hurt my chance?

    According to your experiences, how much this burden weight under the candidate selection process?

    • says

      Yes, it will be a disadvantage. It depends on the bank and I don’t know the specifics, but visas are a huge pain in the US and it’s almost easier to go to Canada or another Western country that doesn’t have backward immigration policies.

  10. C says

    Listed a question above but I was also going to ask if your going to do an article on Institutional Fixed Income Sales as well?

  11. David says

    This may have been covered already, but have you ever heard of someone moving from S&T to a research/buy side role? If one wanted to end up on the buy side (PM etc.), would starting out in S&T be a bad idea?

    Thanks.

    • says

      It’s possible, I don’t think starting in S&T is a bad idea necessarily but the transition would be harder than coming from banking for example.

      • David says

        Interesting, thanks. Would your answer change if I am coming out of b-school, rather than undergrad (25 yr old)? That is, is it a less good idea to start in S&T with an intention of moving to the buy-side if I’ve already burned some post-grad years?

  12. K says

    Is it possible for recent grads to get into Institutional Fixed Income Sales (like MBS)? If so how would you recommend doing so and what is the experience like? DO you think its smarter for someone to do more analytical work before going into something like that?

      • S&T says

        Do you have any advice for someone with a sales and trading background (cash equity, fx and options) who would like to switch to IB? I am heading to a top 15 for an MBA this summer, which strategy would you recommend me, besides the obvious networking? How can I make my background relevant to IB? Thanks!

        • says

          There’s an upcoming reader interview on this topic, but basically emphasize long-term, fundamental trading, try to point out your sales/relationship skills as opposed to just trading, and show some evidence of interest in corporate finance / valuation in addition to just trading.

        • Ted says

          S&T

          Can you please tell us a little more about the Sales roles you fulfilled during your rotation. I am interested in getting into institutional sales post-MBA but am interested in what type of skills you’ve gained through working in an S+T rotational program.

  13. Filipe says

    What should one know to get a Algorithmic Trading job :
    I study Economics , even though I have Calculus and Statistics I know nothing of programming ….

  14. Winston says

    I came across your website whilst conducting an independent scientific research which involved the nonlinear problem in financial markets on the complex system theory and the nonlinear dynamics principle, with the data-model-concept-practice issue-oriented reconstruction of the phase space by the high frequency trade data. In practical applications of financial markets, we have repeatedly carried out experimental tests in a fluctuant evolvement, directly simulating and validating the price fluctuations to test the stock XYZ Proprietary and the futures Fuel Oil in China.

    I am an undergrad Physics/Mathematics major with C++ experience and a business edge (I dropped out of business school because I felt unchallenged and unhappy). Our current research is opening up many doors of inspiration and I’ve decided to return to the ‘game’ with an edge.

    Which areas of iBanking would seem appealing to a candidate with my background? I have little experience and graduate in a year or two?

  15. Prop says

    Thank you so much for the articles.

    I’m very interested in proprietary trading firms. Could you add a day in the life of a proprietary trader to your list of future articles?

  16. Tristain says

    Hi sorry to bother u with a Q

    i kno that now most IBD hire full times only from interns (whether in-house or from other banks ) does trading also follow this trend. which means if u haven got any trading internships then u will not likely to get hired as trader from grad level ???

    if i apply for trading at grad level, can i specify wot dpt that i am particularly interested in ( for me is equity not FICC )…so that when they interview me there will be less FICC questions come up ??

    thanks

  17. Vince says

    Hi Jerry,

    3 questions:

    1. With the new financial reform act, what type of firms would be the best to apply to for a prop trading job, since big banks are now restricted in their prop trading abilities?

    2. Are there prop trading opportunites on both the buy and sell side?

    3.What would be the main differences in the day-to-day activities and pay structure between buy and sell side?

    • says

      1. Prop trading firms and hedge funds.

      2. Not really, as a prop trader you’re an investor so it’s buy-side.

      3. Sell-side = work with clients and take their orders. Buy-side = make your own investments at your own pace. Standard deviation of pay much higher on buy-side, but potential is also much higher.

      • Vince says

        Thanks a lot for the help.

        Have you heard of either of these two prop firms: Lynx Capital Partners or AMR Capital? Are they legit shops?

        • says

          Haven’t heard of them but I know almost nothing about small prop trading firms – might want to ask on the WallStreetOasis Traders’ Forum and see if anyone there can tell you anything.

  18. Nate says

    Long time reader, first time “caller” —- Hope my question isn’t a repeat:

    Took advice from your blog and left my Sales Director position of 3 years at Quicken Loans, and “got my foot in” here at JPMChase as a Loan Officer—-goal was to perform like a rockstar, and get doors to open. Guess what? 9 months later, BAM. I’m here. Doors wide open. Manager fully supportive. So, here is “Thank You” number one.

    So, with my B.A. in Economics from Michigan (Read: crappy GPA) I want to transfer “internally” to Inst. Sales or IB Sales —- any advice/direction? Or go for MBA first then transfer?

    It’s a unique “internal” transfer bc its Chase retail to JP Morgan. (e.g. BAC to ML, Citi Retail to Citi IB, etc)

    And here is “Thank You” number two. Cheers.

  19. Stephen says

    I have been checking with the site for a long time–it has been invaluable as a math student with fairly little knowledge of the finance industry.

    I need some quick advice. I have been offered two interviews with G&S (both of which I applied for a couple months ago)–one sales and trading, one global investment research. While the fact is that I would take either position if given the chance, I think I can make a much better case for GIS and am really not sure that the Sales and Trading environment is for me. Is it rude to decline (all of this is done online, not face to face) the Sales & Trading interview or does it show decisiveness in my understanding of banking? I hear they also generally don’t give out both interviews on campus.

    I get the impression that the same set of people will be conducting both interviews, for whatever that is worth.

  20. Moe Green says

    How do I best make the change from commercial real estate sales to institutional sales?

    I’ve worked as a broker for several years, and practiced law before that. (The law practice had no connection to finance.)

    Thanks a lot!

    • says

      That is tough and it’s usually easier to go in the opposite direction; probably have to network and cold-call a lot of small places and ask about joining and go through the normal sources like alumni.

  21. CuriosityNeverKills says

    Say you got hired in S&T after MBA. What if you flunk out/get fired/laid off from S&T? Can you move to a ‘regular’ company?

  22. Will says

    I work for a boutique investment bank focused exclusively on private equity mandates. I really enjoy the sales & marketing side of a transaction (talking to PE funds, ‘telling the story’, handling questions/inquiries, etc.) and would like to focus my attention on this. Do you think the skills are transferable to an institutional sales position?

    • M&I - Nicole says

      Yes. However, most sales desks want experienced hires who have contacts with long funds and hedge funds so they can start generating commission right away. Depending on your level, you might be able to move to a mid-level/junior-level role where the bank gives you the clients to service. Or focus on building your network w LFs & HFs if you can.

    • says

      I always say that sales is sales, the only thing that changes is the product you are selling. Nicole is right that an existing rolodex is usually required for more experienced postions. Depending on your experience, though, you can always look for a more junior position and work your way up.

  23. HFHD says

    I am interested in Trading because I love working under pressure and it sounds fascinating. Are there any books and articles you suggested me read to learn more about Trading?
    Thanks.
    I love this site. It is literally invaluable.

    • M&I - Nicole says

      Thanks. Not sure of what type of investments you want to learn more about? Others might hv better ideas re books to recommend. The Boiler Room is an interesting movie that gives you a better idea of what trading lifestyle is like haha. I think its a bit exaggerated though.

  24. Suman says

    Hey Nicole thanks for the quick response. I have applied to analyst position in a firm mentioned in the article. Currently I am just graduating from a university in Singapore and I do not know much about financial modelling and stuff. Do you think I can directly go into private equity? I am really interested and motivated to work in this area. Do you think I can use this ‘motivation’ to differentiate myself in my story telling? Do you think the networking techniques taught here are going to work in Indonesia? Thank you so much.

    • Suman says

      Because people that are informed and interested in private equity in Indonesia are not many, as far I concern. Mostly people that studied in the US that came back that went into private equity, from what I see from Linkedin.

    • M&I - Nicole says

      Tough sell. You are competing people w IB experience. You’d have to network intensively w PE GPs in Singapore and see if they’re hiring anyone entry level (no experience at all). It happens but not often.

      I believe our networking techniques work everywhere.

      Think the above shd address your questions.

  25. Toosoonjunior says

    Hi team,

    I dont know how it was like in thr past but it seems
    common nowadays for trader positions to require experience in,programming and,more specifically SQL and VBA. Do you think it would be worthwhile taking some programming courses to break into trading?

    Secondly, so prop trading at investment banks is now banned in the whole world? Does that mean you can only really become a trader thru a prop trader/ hedge fund?

    Thanks

    • M&I - Nicole says

      1. Sure I don’t think its necessary though
      2. Not the whole world but banks have been winding down their prop trading business due to Volcker Rule, esp banks which have rec’d TARP money

  26. John says

    Are Sales & Trading positions less competitive on the West Coast considering the time you have to wake up to keep up with the market? Or is there an overall smaller presence on the West Coast limiting the number of spots for traders? And im referring to trading at BB banks.

    • says

      Most BB banks barely even have S&T on the west coast of the US – it’s very heavily concentrated in NY. So there are very few spots, but few people also apply. Overall the competitiveness isn’t much different, so starting in NY is definitely recommended.

  27. Lucas says

    Hi Brian, 3 questions for you:

    - Do you think that, having been a sport-exchange trader for 5 years, the banks might be interested in me just for this? (afterall i’m suppose to have experience to work under-pressure and i’ve managed my money)
    - Is the growth of High Frequency Trading making this job tougher and less-paid?
    - Taking an MBA and then apply to a trading position is the dumbest thing you’ve ever heard even if you would like one day to open your own hedge fund?

    thanks a lot

  28. Andy says

    So now that all/most BB’s have eliminated all propriety trading, all those working in trading are just agency traders. That means it’s a lot easier to break in and requires a lot less skill? And exit opps are very bad for S&T right now? What types of exit opps can you expect to have going into S&T within these next few years?

    • M&I - Nicole says

      No given less spots available.

      Exit opportunities – depends on how good you are. If you are really good, you will find something that suits you, or you will start your own firm.

      S&T – buy-side, boutique IBs, PB, starting your own firm etc numerous options – depends on how good you are

  29. James says

    Hi,
    Could you elaborate more on what people at structuring, strategy and analytics do? I was doing some research on the internet and the information wasn’t very useful.
    Best,

  30. says

    I am currently a sales-trader on the sellside, I am finding that the short-term thinking and static daily routine are boring me….I think I need something more analytical/innovative. I am not willing to work 100 hour weeks but am also not looking to make millions. I live on the West coast and the 4am wakeup are probably adding to the reasons I am thinking of a change. What can I do with a couple years of trading experience? Was in operations before that….and just have a B.A education-wise (working on CFA still). Any suggestions would be great! Thanks

    • M&I - Nicole says

      Do you actually like finance/investing? If you do, I’d move to the buy-side. You can always work for a HF w your trading skills. You can also look at long funds. Not the best environment but some are still hiring. Hard to move into VC/PE unless you have a very strong network since you don’t have the entrepreneurial experience/IB/industry related experience (I may be wrong cause I don’t know your background). Other than that, I’d figure out what you’re good at, how you want to add value, how you can add value, your interests, etc and perhaps start your own company.

  31. Richard says

    How hard is it to change product at a bank? I’m currently in equities as an analyst in sales(6 months), but would really like to be in FX. Is it known to move from equities sales to FX sales? And what would be the best way to do it – internally/externally?

  32. Jon says

    Hey Brian,

    Awesome article! I truly have a much better understanding of what trading is now. However, I was wondering what you would define as Sales?

    I have a very basic understanding or no understanding of what sales is and am curious to note the difference between sales and trading.

    Thank you for the time and your website rock!

    • M&I - Nicole says

      Sales – They sell investment ideas (buy/sell calls from research) to hedge and long funds
      Trading – They take orders from hedge and long funds and execute for them (getting them the best prices)

  33. Evan says

    Hi, I was wondering if it would be a good idea to double major in Computer Science and Economics? Would that be much more attractive than just a degree in Economics?
    Thanks

    • M&I - Nicole says

      CS can be useful for IT-related and possibly some quant roles, though I’m not sure if a double major will make that big of a difference.

  34. Pete says

    Hey!
    First of all: congratulation to this website, and most of all its content. I am truly amazed; I spend the last couple of hours reading one article after another like I was reading a book.

    I have a couple of follow-up questions to this article:
    On the career-page of JP Morgan, you can find six different roles in Sales, Trading & Research:
    http://careers.jpmorgan.com/student/jpmorgan/careers/emea/business/str
    They differentiate between “sales”, “sales trader” and “trader”.
    I guess in “sales” you are a pure salesperson, cold calling people etc. What is refered to as “trader” is probably an agency trader, but the question remains what a sales trader is. Is it like a broker on institutional level, both executing trades himself but being in contact with customers?

    Also: is there a difference between a marketer and a broker?

    One more question: since prop trading is forbidden in investment banks, in what field did the former prop traders mostly move?

    Thanks for the article once more!

    • M&I - Nicole says

      You don’t usually cold call at JPM institutional sales; you are usually given a list of client and depending on your level you will be expected to generate new leads but not usually through cold calling. Sales trader’s function is a combination of “sales” and “trading” – yes broking on institutional level and also being in contact with institutional clients and executing trades.

      Marketer – not quite sure what you mean by that

      Former prop traders? They can trade for themselves, work for a HF, work in S&T … or retire

      • Pete says

        Thank you for your answer!

        If you take a look at the link I sent you, you will find “marketer” as first of the six different job profiles:

        “As a marketer, you’ll play a crucial role, by both creating our products and dealing directly with clients.”

        That’s all the information they give on the page – any idea what that could be?

  35. College Student says

    Hey,

    I was wondering what would be the best path to take if I wanted to work for a firm that didn’t participate in speculative trading? More like Berkshire where they do research on the company before buying and never over paying. Thanks

  36. Mustang says

    Hey Brian,

    I’m looking to do a trading internship program at a bank in New York that gives you exposure to all the different desks. Was wondering what the hierarchy is with regards to the different desk (in general fixed income v. equity, credit derivatives, MBS, electronic systems).

    Liar’s Poker is getting a little dated, but is “Equities in Dallas” still that bad (I get the Dallas part) but compared to treasuries, corporates, or even commodities/forex. What are seen as the best desks ($) and what are seen as the bottom of the ladder?

    Thanks!

    • says

      There isn’t a real “hierarchy” to my knowledge – different desks have different trade-offs. We hope to publish a comparison article on them soon.

      I think Equities is fine, though you definitely want to be in NY rather than Dallas when starting out. Arguably Fixed Income is “more interesting” in some ways and sometimes the pay ceiling is higher, but plenty of people make money elsewhere.

  37. TK says

    Hi

    I am currently in my undergraduate year 3 in Finance. I was offered a 6-month internship in FX sales with Citi in which I must accept the offer by next week. If I accept the offer, I will have to extend my graduation by another 6 months.

    At the same time, I am lined up for an assessment center in mid Jan 2013 with Barclays s&t (jun-aug 2013) summer internship. I will be having phone interviews with BAML for s&t summer internship soon too. I have also just had my final round interview for ICAP voice broking summer internship, which I will hear results soon.

    Currently, the job market is really tough, and I have a strong passion for trading. So my questions are these:

    1) Should I accept the offer from Citi for FX sales 6-month internship and extend my graduation by 6 months?
    2) Accept ICAP offer if they offer me?
    3) Or, should I reject it, try my best at the upcoming ACs and interviews, and hopefully get an offer for the 2 month summer internships?

    Pls advise.

    Thanks.

    • M&I - Nicole says

      1. If the FX sales role interests you, I’d probably do it.
      2 + 3. If you get the ICAP internship, I’d try to buy time with them if you can. Interview with other banks and see what offer you end up getting. Then you can decide whether you should take the ICAP internship or not (ideal situation – assuming you can actually buy time from those guys)

      • TK says

        Hi Nicole

        Thanks for the advice.

        I would love to do FX trading. I am caught in a dilemma. Due to the current bleak market outlook in the S&T business, I don’t know if I should do FX sales (and extend graduation) so that I can get a step in to the S&T team, or should I turn down the Citi offer and risk it to see if I can get the other offers.

        Please let me know what you would do if you were in my shoes.

        Thanks.

        • M&I - Nicole says

          Have you spoken to the team in FX? Do you know what you will be doing for them? Do you like the people? I’d suggest you to speak with them and better understand what working with them entails before you make a decision. Sure, outlook for S&T can be bleak though landing other offers can be as challenging

          • TK says

            Hi Nicole

            Thanks for the reply.

            I have spoken to the director, and people who have interned there. From the director, the culture seems nice. People who interned in Citi FX sales said that learning experience was really good, where they got to undertake full responsibility despite being interns.

            “Sure, outlook for S&T can be bleak though landing other offers can be as challenging” – so you are suggesting that I should take the offer since it is not easy to get other offers in this current economic environment?

            On a sidenote, may I know in a bank what is the highest and average annual returns of the prop and agency traders? By annual return I mean if they have 1million capital to trade with and they make another 1million, the traders will have an annual return of 100%.

            I look forward to hearing from you.

            Thanks.

          • M&I - Nicole says

            I wasn’t suggesting anything – I just stated my thoughts. I am not here to make a decision for you because ultimately you are the one responsible for your choices! :) What do you have to lose by taking this offer?

            Re your second question, I think readers may have better suggestions!

          • TK says

            Hi Nicole

            The only thing that I lose is that I might need to extend my graduation date by half a year. Right now, I am not sure if doing a FX sales internship is much more valuable than an extra year in college.

            Moreover, if I do this Citi FX sales internship, I will be giving up possible S&T internship opportunities with other bulge brackets as final rounds with them will be in January 2013.

            I really appreciate that you took time to listen and advise me on this.

  38. learner says

    Hi,

    I came across your website by accident & have found it extremely useful. A BIG thanks to the M&I team. I am new to finance & am interested in trading. I had a few Qs & was wondering if you could help:-

    1. Since Investment Banks have stopped Prop Trading, does that mean that all traders at IBs are “agency” or “flow” traders ?

    2. I understand that before the Volker Rule was passed, people who were interested in “Trader” positions at IBs were mainly interested in the Prop trading role, because of the risk you could take & the profit you could generate. However, now that IBs can no longer run prop desks, what is the incentive for someone to apply for a trader position at an IB(which is basically an agency/flow trader role, NOT prop trader) ?

    3. a) Out of 100 traders at an IB, roughly how many are “flow” and how many are “agency” traders?

    b) Does the above answer also depend on the product being traded (equity vs FI)?

    4. Can you suggest any article to learn more about “Flow” and “Agency” trading ? Maybe even a “Day in the life” kind of article ? I did not find much useful info from my googling effort.

    5. (a) Are “flow trading” and “agency trading” done electronically or via other means?

    (b) How advantageous is it to have a CS background if I apply for a “Trader” position in an IB today (in the post Volker Rule era) ?

    6. Could you rate the following skills in terms of importance for a flow/agency trader at an IB:-

    a. Math skills
    b. Programming
    c. Finance skills

    7. For someone working as an agency/flow trader at an IB, what are the exit opportunities ?

    8. Would you say that “Flow Trading” is better than “Agency Trading” in the sense that you are atleast making SOME investment decisions on your own, so exit opportunities are better ?

    9. Can you describe the term “Execution Trader” as compared to “Agency” or “Flow” trader ?

    Sorry for the list, but I’m very new to finance & trading.

    Thank you very much !!!

    • M&I - Nicole says

      1. http://video.cnbc.com/gallery/?video=3000131431
      2. Because they enjoy investing and trading and enjoy the fast-paced environment. Pay is not bad either.
      3. Don’t know the numbers for this one
      4. Perhaps these articles may shed some light:
      http://www.mergersandinquisitions.com/sales-trading-equity-trading/
      http://www.mergersandinquisitions.com/sales-trading-vs-investment-banking-part-1 -recruiting/
      http://www.mergersandinquisitions.com/all-about-sales-trading/
      http://www.mergersandinquisitions.com/what-you-do-in-fixed-income-sales-trading/
      5. Yes I believe so; I may be wrong. Maybe though passion in trading is most important
      6. c, a, b – ability to think on feet is important
      7. If you aren’t already on the buy-side, that’s an option. Start your own trading firm.
      8. Yes
      9. http://www.mergersandinquisitions.com/what-you-do-in-fixed-income-sales-trading/

      Good luck.

      • learner says

        Hi Nicole,

        Thanks for your reply. I had some follow up Qs

        1. Regarding my Q1, I saw the video you posted but I’m not sure it answers my question. Could you take a look please.

        2. For Q2, wouldn’t someone who enjoys investing & the fast-paced environment join a Hedge Fund/prop trading firm instead of joining an IB as a flow/agency trader ? After all, in a HF/prop shop; you get to make the investment decisions yourself, while at an IB, you are largely executing orders as per client wishes ?

        3. For Q5, is it possible to confirm the answer ? (I have an interview next week & am planning to use my CS background as a USP).

        4. For Q7, when you say “move to the buy side”,

        a) Are you referring to hedge funds ; asset management firms or any other type of firms?

        b) Would an agency/flow trader from an IB move to the buy side as a Portfolio Manager or as a Trader (if so, what type – prop/flow/agency)?

        Thanks Nicole :)

        • M&I - Nicole says

          I’d suggest you to network with people in the industry to gain more in-depth insights into your questions. Good luck on your interview!

          • peter says

            Hi Nicole,

            I had a few questions about your reply:-

            1. You mentioned that people join IBs as flow/agency trader “Because they enjoy investing and trading and enjoy the fast-paced environment.”

            But doesn’t an agency/flow trader only execute client orders instead of deciding where to invest ? So then, what is their incentive to join an IB as an agency trader?

            2. You mentioned that exit opportunity = buy Side.

            a) Do you mean hedge Funds / asset management firms ?

            b) Would an agency trader join the buy-side as prop trader / portfolio manager or another position ?

            3. If the agency trader does not develop the skills to make investment decisions at an IB, but needs these skills on the buy-side (assuming they go as Portfolio Manager / Prop Trader), from where do they develop the necessary skills ?

            4. Are there any products for which there is Non-Agency trading still done in IBs by a human trader ? (PS: I am NOT asking about non-agency trading done by computers/algorithms; but I’m asking about non-agency trading done by a human trader). I want to see that if I join an IB as a (non-agency) trader, what desk will help me develop the skills to move to the buy-side after few yrs.

            Thanks !!

          • M&I - Nicole says

            1. Everyone is different so I can’t say for all but you’ll have to be somewhat interested in trading/finance to be a trader, whether you’re an agency or flow trader

            2. Yes. They’ll probably have to gain more experience making their own “investment” calls before joining as prop trader/PM

            3. Interesting question – perhaps transfer to sales trading

            4. Readers may have better insights to this question

  39. A says

    What asset classes does the Volcker Rule affect in terms of banning prop trading ? Has it been implemented as law yet ?

    Thanks !

  40. WantToBeATrader says

    I have a basic question regarding equities that I can’t seem to find an answer to online. Let’s say that I have a quote for MSFT stock which says the following:

    Current Price = $13.22
    Bid = 13.20 x 200
    Ask = 13.27 x 1,000

    What do the sizes for the Bid and Ask Quotes (200 and 1,000 respectively) actually represent? By the way, I already understand that the quotes for the prices represent the lowest Ask Price and the highest Bid Price that investors have offered for MSFT.

  41. Justin says

    Hi, this has been a really great site on S&T and I’ve really enjoyed my time here. However, I’m getting a bit confused over a few fundamental concepts and it would be great if you could help clear my doubts.

    1) I do understand that there are 3 kinds of trading (agency, flow, and prop). So if I do get a sales & trading internship in a bulge bracket bank, which of the 3 kinds of trading will I be primarily doing?

    2) What exactly is it that makes the life of a trader stressful? If you’re an agency trader, all you need to do is to listen to the orders of your client without having to take any positions, well, unless you’re a prop trader.

    3) Am I right in saying that the main revenue source of the S&T arm of any investment bank is market making? For example, if a client wishes to buy 1 million stock X, the salesperson will convey this order to the trader, who will then buy 1 million stock at, say, $1, and sell all of these stocks to the client at $1.05. The total profits made from this simple trade will then be $50000. Is this correct?

    Thank you very much and have a great day!

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