by Jerry Chi Comments (112)

48 Hours in the Life of a Sales & Trading Intern

48 Hours in the Life of a Sales & Trading Intern

The following takes place between 6 AM and 6 AM, at a large investment bank in Tokyo.

Events occur in real time.

6:00 AM: The alarm goes off. I really want to snooze but via sheer willpower I jump out of bed – need to impress my boss and co-workers.

6:30 AM: For my breakfast, I buy bottled tea and onigiri (rice balls) at a convenience store. I listen to the Nikkei Shimbun (analogous to the Wall Street Journal) podcast while walking to work.

6:50 AM: I am one of the first people at the office. I breathe a sigh a relief after confirming that my boss isn’t here yet – sometimes he comes in early too.

I had promised myself that I would prove to my boss what a hardworking intern I am. I hastily start the menial task of copying and passing out materials (e.g. research reports, recap of other world markets, latest rates data, etc.) to each trader’s desk. I wonder how many of the traders actually read what I pass out.

8:00 AM: The trading desk is almost full now. I am skimming articles on financial websites and Bloomberg, preparing myself to sound well-informed on the markets when talking to people for the rest of the day (Note: Many trading interns do not get access to Bloomberg since it is very expensive… to the tune of $1500 USD per month). I try to predict how the news will affect the markets for the day.

8:15 AM: All the equity traders have arrived at their desks – fixed income trading is on another floor. Everyone gathers for our morning meeting. Some of the salespeople that work with the traders float over to listen in.

Traders that specialize in each sector or type of trading – vanilla equity, options, portfolio trading, agency trading, etc. – give quick overviews of what happened the day before and their predictions for the upcoming trading session.

What happened overnight in the US/European markets is also naturally a point of discussion, since markets tend to follow each other.

Sometimes I struggle to understand all the jargon or the specific concepts underlying their comments, but overall I can grasp what they’re saying. Everyone speaks in English at the meeting, but many revert to Japanese afterward.

9:00 AM: The Japanese stock markets open. Today I am spending the first couple hours sitting next to an equity options trader, having gotten his permission the day before. I make sure to stay especially quiet right before and after the market close, since those are the busiest times for traders.

Out of his 6 monitors, he has Excel open on 2 screens, Bloomberg open (usually charts) on another 2 screens, Reuters open on 1 screen, and another screen for Microsoft Outlook. The numbers in Excel update every second. I see the trader wrinkle his eyebrows and I wonder why.

10:00 AM: I wait for a moment when the trader seems less busy, and I ask him about what happened. Apparently his gamma had not been hedged as well as he had thought – shortly after the market opened his gamma rose to a higher level than he had anticipated, which meant more risk than he wanted.

I nod in appreciation; I know that some other traders would not have bothered to answer my question.

11:30 AM: Today is a volatile day in the market, and many traders don’t feel comfortable leaving their desks for lunch. I am sent to McDonald’s to buy burgers for most of the equity traders. I’m OK with doing a bit of grunt work; after all, I am an intern, and I’m way better off than the interns in Liar’s Poker.

12:30 PM: By now my eyes and neck are a bit sore from looking at the equity trader’s 6 screens while sitting at the edge of his desk. The market is slowing down a bit now anyway, so I return to my own desk and read some articles and midday market recaps.

I work on the stock picking analysis project that my boss assigned to me, but I know I won’t be able to get any serious work done until the late afternoon.

1:30 PM: I figure I’ve annoyed the equity option trader enough for the day, so I try to find someone else on the desk that’s approachable enough to let me sit by them. I end up sitting next to an equity trader who focuses on retail stocks. Unfortunately, he is one of the more introverted types, and it’s hard to get him to say much. I see him make two trades for the rest of the day.

3:00 PM: Japanese stock markets close. Of course, there’s still after-hours trading, and much work to be done. I see the equity options trader I sat with get up and go to the coffee room. I “coincidentally” happen to go to the coffee room for a break.

There, I thank him again for letting me sit with him, and I do the best job I can of commenting on what happened in the market that day, while asking his opinion on a few points.

He comments that I am pretty knowledgeable for an intern, and it seems like I have made a good impression on him. I think to myself, “Yes…. one step closer to getting a full-time offer…”

4:00 PM: I go out for coffee with a guy from the middle office, an appointment made previously. He’s one of the junior guys, so he’s not too much older than me.

As an intern, not everyone is willing to go out to coffee with you – and sometimes you can learn a lot from people other than the managers and star traders.

I milk him for information: Which traders are more approachable? Exactly how do you interact with the traders? What happens when a trade doesn’t settle correctly? We also bond by talking about which girls in the office are cute.

5:00 PM: My manager takes me to a small conference room for my 10-minute weekly meeting. How much have I learned so far? Which type of trading was I most interested in? Did I have any questions? He reiterates that the competition is tough and that I’ll have to keep working really hard to impress everyone if I want a full-time offer.

5:30 PM: I start working on my stock picking analysis project once again. By downloading data (both fundamental data and technical analysis data) from Bloomberg into Excel on thousands of stocks, I try to figure out a handful of stocks that would be good long trades, and some that are good short trades. This is only one of several projects I am working on.

7:00 PM: Many of the traders have left their desks by now. I wander around the trading floor trying to find someone who’s not in a hurry to go home, and I try to start a conversation to learn something about their trading that day.

Sometimes traders are more relaxed at this time of the day and it’s easier to talk to them.

7:30 PM: I get an email with a link to 50-page economic report from the research team. I interrupt my work to skim the report.

8:00 PM: Almost all of the traders have left the office. Why is my manager still here?

8:30 PM: My manager finally goes home. Whew. I try to wait at least 15 minutes after he leaves so it doesn’t look like I am leaving right after he does.

While there’s less face time in trading compared to investment banking, you still don’t want to leave before your boss – especially as an intern.

9:00 PM: Meet up with a friend and some of her friends for dinner. Most of them are done eating by the time I arrive, but at least I get to say hi.

11:00 PM: Arrive at home. I plan to go to sleep within 30 minutes but after checking email, I end up staying up past midnight. I cringe when I think about how hard it’ll be to wake up the next day.

Then I think about my investment banking intern friends – who are still at the office – and I feel a bit better.

Day 2

5:40 AM: Wake up. I had set my alarm earlier because the day before I had trouble finishing the grunt work on time. I pummel my own head in an attempt to feel awake.

6:30 AM: I arrive at the office… and there is only one other person there. Hmmm, am I working too hard? I tell myself it’ll all be better once I am a full-time employee – which is usually true, at least in trading – and then I begin copying research materials that need to be passed out later.

7:00 AM: The copier is jammed, and I didn’t notice for 15 minutes. Crap. I start to multitask, using 3 copiers instead of 2.

8:00 AM: Today, before the general traders’ meeting, I go to the agency traders’ smaller meeting, which is only in Japanese. The agency traders are responsible for executing the large orders placed by large buy-side institutions, like mutual funds.

They talk mostly about news and overseas market movements, but they also talk about the previous day’s order flow, and about how a research report produced by our firm today might cause a lot of orders for a specific stock. The meeting lasts about 10 minutes.

9:00 AM: The Japanese stock markets open. Today I am spending the first couple hours sitting with the agency trading team. Agency trading is really different from proprietary trading because all the decisions about what and how much to trade are decided by the client – the only decision made by the trader is how to divide the order into smaller trades and when to execute them.

The trader I am sitting with has been doing this for years, and is able to constantly submit trades while barely looking at the screen and talking to me at the same time.

I pray that his discussion with me doesn’t cause him to make any mistakes. Fortunately, he doesn’t have fat finger syndrome. The trader has 4 screens – 1 for order submission and order details, 2 for Bloomberg (charts), and 1 for email / browsing. I am able to ask a dozen or so questions, which is more than usual.

11:00AM: The Japanese market closes for the lunch break (1.5 hours). I go out to lunch with the agency traders, who have less work than the other traders since they don’t have to do as much analysis.

Half of our conversation is about trading, and the other half is about Japanese celebrities. My knowledge of celebrities helps me bond with them… which might increase my chances of getting a full-time offer? I later realize that bonding with traders and being liked are quite important for getting an offer.

M&I Note: This is an important and oft-overlooked point. As an intern, people need to like you if you want a full-time offer – and the same goes for entry-level interviews as well.

12:30 PM: Since the agency traders don’t seem to be annoyed by me, I keep sitting with them until the markets finally close at 3 PM. I start to get bored and tired near the end, but I keep myself busy thinking of new questions for them.

3:30 PM: I had previously made an appointment for coffee with one of the sales traders, but he cancels on me for the second time. Maybe I just should give up on talking to this guy.

4:00 PM: The Head of Prop Trading is having a meeting with some other traders and some middle office guys and suddenly calls me and another intern into the meeting. He wants me and the other intern to help with trading commission calculations, and I have to collect some of the information necessary to do so myself.

I am surprised that a bulge bracket investment bank doesn’t precisely track its trading commissions – but later, I realize that even the biggest financial institutions are full of problems you wouldn’t expect.

I think about how I already have a big trading analysis project AND an equity research project AND grunt work AND other random stuff I have to do, but at the same time I can’t bring myself to say no. This guy is an MD, so I’ve got to impress him. Fortunately the other intern pipes up and finds excuses for why we can’t help.

4:30 PM: Afternoon snack. I go downstairs and make sure nobody I know is in the room, and then I eat a sandwich while massaging my eyes and neck. I don’t want to come off as stressed or physically strained to anyone.

5:00 PM: I spend an hour trying to figure out some Excel VBA for automating organization of data in the trading analysis spreadsheet I’m making. After some trial and error, I get it to work.

The other intern sucks at Excel and is having trouble doing his analysis, so he comes to annoy me with questions. I wonder why an MBA knows less than me about Excel.

7:30 PM: I eat some ramen. Mmmmm. No matter how unhealthy or cheap it is, I still love ramen.

8:00 PM: I feel really tired, so instead of working on my project I just read tons of financial articles. Nobody is paying attention to what I’m doing, anyway.

8:30 PM: Half of the trading desk is still here, mostly junior people. What are they still doing? I go over and talk to them – they are planning and analyzing trades for the next day.

I conclude that if these people weren’t workaholics, they probably wouldn’t be here. Then again, if you’re making or losing millions of dollars every day, sometimes overnight, maybe you’d never be comfortable being away from work anyway.

9:00 PM: I go home and cook noodles with canned fish, seaweed and soy sauce and eat them while watching Japanese music videos. Actually, it’s a pretty good way to cool down. I read a chapter of Future, Options, and Other Derivatives by John Hull.

11:00 PM: I crawl into bed. Wow, I’m going to get almost 7 hours of sleep!

Day 3

6:00 AM: Wake up. Back at it…

About the Author

Jerry Chi graduated from Stanford, worked in equity research and trading in Japan, and then started and sold his own prop trading firm in China. He earned his MBA from Wharton, and then worked at Google and Supercell in Japan.

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by Jerry Chi Comments (155)

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

What You Actually Do In Sales & Trading, Part 2: Equity Trading
Man Analyzing Financial Data and Charts on Computer Screen

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

NOTE: In theory, the Volcker Rule passed after the 2008-2009 ended proprietary trading for banks. In practice, however, banks can still use it for certain hedging activities, so it has not gone away completely, though it is greatly diminished.

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.

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

Jerry Chi graduated from Stanford, worked in equity research and trading in Japan, and then started and sold his own prop trading firm in China. He earned his MBA from Wharton, and then worked at Google and Supercell in Japan.

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