Careers in Trading
For starting career in trading, one is required to get the required degree from the reputed university, after which the person can build up his career by working in the various organization like insurance companies, asset management companies, private equity firms, mutual fund companies, and the other firms involved in providing the financial services.
Getting a degree in finance and accounts is just a beginning step, and the next major step involves finding the right field in the finance sector for your career and explore options that interest you and also get you good financial stability in life. Often finance degree holders want to explore job opportunities in the field. Trading is a field that has many job avenues to venture into, and if the field of trading suits your interest, then you are at the right place. In this article, we will elaborate on the different types of careers in trading that a financial graduate can get.
In order to establish your career in the trading field, you need to understand what is trading, the nitty-gritty involved in trading, and how it is done.
- What is Trading?
- Different Types of Trading in Wall Street
- Types of Trading Careers in Wall Street
- Trading Career Pre-requisites
- Where to look for Careers in Trading
What is Trading on Wall Street?
Trade refers to buying and selling goods to gain money. Trading not only earns you money but also serves the purpose of providing services to various consumers. Trading plays an important role in the global economy by creating liquidity in the financial marketFinancial MarketThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces.. Trading is the chief source of profits for investment banks, and it is also done by many other institutions like hedge fundsHedge FundsA hedge fund is an aggressively invested portfolio made through pooling of various investors and institutional investor’s fund. It supports various assets providing high returns in exchange for higher risk through multiple risk management and hedging techniques., commodities companies, etc. Trading, generally, uses scientific methods and extensive research to predict the future of the financial market.
Types of Trading
There are three major ways in which trading can be done:
#1 – Market Making
Market making is when a trader buys a product or asset from a buyer and then sells the product to a seller at high prices, thus making his profit in the deal. This gain in profit is called market making. To be a good market makerMarket MakerMarket makers are the financial institution and investment banks which ensures enough amount of liquidity in the market by maintaining enough trading volume in the market so that trading can be done without any problem., you need to observe the market closely and complete both sides of the deal before the price of the asset goes up or dips down.
#2 – Agency Trading
In agency trading, you perform trading for your client. An agency trader has a list of clients who contact him for buying assets at a specified amount, and the agency trader executes the request. Agency trading involves many restrictions as compared to other ways of trading.
#3 – Proprietary Trading
Proprietary tradingProprietary TradingProprietary trading refers to the process adopted by the commercial banks and financial institutions to earn profits by investing their funds in the financial instruments rather than making commission by trading on behalf of their clients. is the riskiest of all types of trading, but it is also the most profitable way of trading. Prop traders work according to the theories and assumptions about the working of the market and open positions according to it. If they are correct, they make a large amount of money; otherwise, they lose the money. Most investment banks have dedicated desks for prop trading, and we even have many firms dedicated to propping trading.
Top 5 Types of Trading Careers
#1 – Equities Trader
- Here the traders trade on publicly listed stocks and shares
- Generally, traders look for large short-term gains, and Equities do not provide such opportunities.
- This is the reason Equity Trading has lost much of its popularity.
- However, please note that Equity Trading is the least risky of all trading areas.
Equity Trader Career
- Below is the job opening for Equity Trader.
- This job is for an Asset Management firmAsset Management FirmAsset Management Company is a company that takes the financial assets of a person, company or another asset management company (generally this will be high net worth individuals) and use the assets to invest in companies that use those as a operational investment, financial investment or any other investment in order to grow the investment. and involves executing trading orders given by Portfolio Managers.
- You should have a good understanding of the Equity Markets and should be able to determine market sentiments using your research, valuations, and analysis.
#2 – Fixed Income Trader
- Trade on bonds, government securities, and fixed-income assets
- Fixed Income Asset means any assets that provide fixed returns over a period of time.
- These can be further sub-divided into Government, Mortgage, Municipal, Corporate, etc.
- Fixed Income trading tends to be riskier than Equities as Fixed income has been extended to exotic instruments like CDO (Collateralized debtCollateralized DebtCollateralized debt obligation (CDO) refers to a finance product offered by the banks to the institutional investors. Such tranches have a complex structure and derive their value from the various underlying assets like loans, mortgages and corporate bonds, which also serve as collaterals in case of default. obligations). CDOs were the main reason for the 2008 crisis.
Fixed Income Trading Career
- Below is a snapshot of the Fixed Income Trading Requirement
- You are expected to have a sound knowledge of the Fixed Income MarketFixed Income MarketFixed Income Market is where fixed income securities like government bonds, corporate bonds and treasury bills are traded. In his market, the investors receive a regular income, whether on a monthly, quarterly, half-yearly or yearly basis, and repayment of principal amount on maturity.
#3 – Forex Trader
- This includes Trading on Currency Movements and fluctuations
- Generally, forex traders trade on currency pairs – USD/INR, EUR/USD, etc
- Trading calls depend on country performances, GDP, macroeconomic outlook, and how the currency is going to perform in the future.
- Trading calls are taken depending on its Depreciation/Appreciation Potential.
Forex Trading Career
- Below is a snapshot of Forex Trading Job
- Forex Traders are responsible for executing FX transactions.
- Their primary role includes monitoring of Total Forex exposure, identifying hedging opportunities, short-term funding, rebalancing requirements, etc.
- They are expected to stay most up to date with Macro trends.
#4 – Commodities Trader
- This includes Trading on Crude, Gold, Metals, etc
- These include almost every tangible natural assets like Oil, Copper, Gold, Wheat, Corn, etc
- Commodities are usually traded in futures (meaning you can exit before the maturity date).
Commodities Trader Career
- Below is a snapshot of the Commodity Trading career profile.
- Commodity trader is expected to keep himself abreast of the latest in the commodities market.
- We should be able to track the commodities and form views on the commodity pricing forecasts.
#5 – Derivatives Trader
- This includes trading with OptionsOptionsOptions are financial contracts which allow the buyer a right, but not an obligation to execute the contract. The right is to buy or sell an asset on a specific date at a specific price which is predetermined at the contract date., Futures, etc
- DerivativesDerivativesDerivatives in finance are financial instruments that derive their value from the value of the underlying asset. The underlying asset can be bonds, stocks, currency, commodities, etc. The four types of derivatives are - Option contracts, Future derivatives contracts, Swaps, Forward derivative contracts. are favorite among traders due to leveraged bets that you can make as well as lower capital requirements.
- It also tends to be the riskiest of the trading style.
- Below is a snapshot of Derivatives Equity Option Trader
- Apart from taking trading calls, it is also important to manage risk here.
- Job includes trading with a team of brokers and screen traders to develop optimized equity strategiesEquity StrategiesAn equity strategy is a long-short strategy on equity stock which involves taking a long position on those shock which are bullish (i.e., expected to increase its value) and taking a short position on stocks which are bearish (i.e., expected to decline or fall its value) and hence booking a sufficient profit from the difference..
Careers in Trading – Pre-Requisites
To make a career in trading, the first and foremost step is to get a degree from a reputed university and, after that, pursue an internship at any commercial bank or hedge fund to get the nitty-gritty of the trade and have hands-on experience. Being a graduate is sufficient for getting a trading job, but with the growing competitions, you will be a much-preferred candidate you have financial degrees like CPA, CFACFAThe Chartered Financial Analyst (CFA®) Program offers a graduate-level curriculum and examination program designed to expand your working knowledge and practical skills related to investment decision-making. , and MBA. Since trading is all about math and statistics, therefore, candidates who have done postgraduate or doctorate in mathematical and statistical fields. In the USA, it is compulsory to clear Series 7 and series 63 exams to be a stockbroker.
In any career in trading, one begins as an intern in any financial organization and then moves up to the level of an assistant trader and then subsequently to the position of a senior trader. It is observed that many experienced traders start their own company after gaining considerable experience.
Where to look for a career in trading?
Now that you significant information about a career in trading, the next question that arises is where to look for a trading job. You can pursue your career as a trader by working with various organizations like investment banks, asset management companies, hedge funds, and other financial firms. As a trader at an investment bank or a commercial bank, you focus on earning profits by providing liquidity for your clients. Whereas, as a trader working in an asset management companyAsset Management CompanyAsset Management Company is a company that takes the financial assets of a person, company or another asset management company (generally this will be high net worth individuals) and use the assets to invest in companies that use those as a operational investment, financial investment or any other investment in order to grow the investment., you need to search for the best prices of the financial tools which are part of your client’s portfolio. On the other hand, in a hedge fund, you will work as a proprietary trader and will earn profits from the changing trends of the financial market.
The buy-side of trading career involves working with various institutions like commercial banks, mutual fund companies, hedge fund companies, pension fund companies, and insurance companies, which tend to buy financial tools to serve the purpose of money management. A good buy-side analyst always invests in the financial tools which tend to meet the expectations of his client.
Under the categories of buy-side, there are many financial institutions one can choose from. For example:
- Insurance Companies
- Pension Funds
- Hedge Funds
- Venture CapitalVenture CapitalVenture capital (VC) is long-term finance extended to startups with high-growth potential to help them succeed exponentially. The investors are venture capitalists who bear the excessive financial risk and provide guidance to startups to attain their objectives.
- Private equity
- Mutual funds
- Asset Management
You can work as a buy-side analyst at institutions like mutual fundsMutual FundsA mutual fund is an investment fund that investors professionally manage by pooling money from multiple investors to initiate investment in securities individually held to provide greater diversification, long term gains and lower level of risks., private equity, and hedge funds, and asset management organizations. You can also work as a portfolio managerPortfolio ManagerA Portfolio Manager is an executive responsible for making investment decisions & handle investment portfolios for fulfilling the client’s investment-related objectives. Also, he/she works towards maximizing the benefits & minimizing the potential risks for clients. where you would buy and sell financial tools for your clients, and you can also counsel senior traders whether to buy or sell financial security or not who would perform the task. At buy-side firms, there are restrictions in the job as compared to other firms as in the role of a trader as you would mostly follow the orders of a portfolio manager, but you can also exercise control by taking the important decision of the perfect time and the best price to buy a financial instrument. However, a career in trading at an asset management company can be less demanding and competitive as compared to jobs at other institutions.
Sell-side usually involves working with institutions like investment banks, asset management companies, and hedge fund companies. A sell-side analyst is the one who prepares an equity research report to advise whether to buy, sell, or hold the financial tools and thus counsels the clients and investors.
Under the categories of sell-side, there are many financial institutions one can choose from. For example:
- Investment Banking
- Sell-side Research
- Trading at banks
We have thoroughly explained the details of careers in Trading that you can get as a degree holder in any finance. If reading this has made you excited and motivated, then a trading career in Wall Street is the right choice for your career. Trading jobs exist at almost all financial companies in the industry, and you have to choose the best suitable role for yourself on the basis of the potential you possess. Different careers in trading require different skills, and you should enter the field after considering the talent required. You should always look forward to your long-term interest so that you can retire in style with sufficient money in your bank account. You need to research and talk to various persons to find the right type of trading career for yourself and perform in order to get that job.
This has been a guide to careers in trading. Here we discuss the top 5 trading careers in Wall Street, including Equity Trader, Fixed Income Trader, Commodities Trader, Forex Trader, and Derivatives Trader. You may also learn more about Trading from the below articles –