Investment Banking Tutorials
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Careers in Trading
Getting a degree in finance and accounts is just a beginning step and next major step involves finding the right field in the finance sector for your career and explore options which interest you and also get you a good financial stability in the 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 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, 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 in Wall Street?
Trade refers to the 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 market. Trading is the chief source of profits for investment banks and it is also done by many other institutions like hedge funds, 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 of profit is called market making. To be a good market maker you need to observe the market closely and complete the 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 trading 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 prop 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 firm 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 tend to be riskier than Equities as Fixed income has been extended to exotic instruments like CDO (Collateralized debt obligations). CDOs were the main reason for 2008 crisis.
Fixed Income Trading Career
- Below is a snapshot of Fixed Income Trading Requirement
- You are expected to have a sound knowledge of Fixed Income Market
#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, its GDP, macroeconomic outlook and how the currency is going to perform in the future.
- Trading call 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 Commodity Trading career profile.
- Commodity trader is expected to keep himself abreast with the latest in the commodities market.
- Should be able to track the commodities and form views on the commodity pricing forecasts.
#5 – Derivatives Trader
- This includes trading with Options, Futures etc
- Derivatives 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 trading strategies.
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, CFA 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 the 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 company you need to search for the best prices of the financial tools which are the 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.
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 Capital
- Private equity
- Mutual funds
- Asset Management
You can work as a buy side analyst at institutions like mutual funds, private equity and hedge funds and asset management organizations. You can also work as a portfolio manager where you would buy and sell financial tools for your clients and you can also counsel senior traders whether to buy or sell a 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 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 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 –