Fixed Income Trader

Updated on May 6, 2024
Article byShraddha Sureka
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What Is A Fixed Income Trader?

A fixed income trader is a financial intermediary that trades in fixed income securities such as government or corporate bonds, notes or bills either for personal investments or for the clients of his employer, an asset management company.

Fixed Income Trader

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These traders aim to generate profits for their clients or the firm they work for by using trading strategies in the fixed-income market. They monitor the market and financial data to make informed investment decisions, based on the financial objective and risk tolerance of clients.

Fixed Income Trader Explained

A fixed income trader is an expert in buying and selling of fixed income financial instruments like bonds, both corporate and government, or any other type of debt instruments. They are are skilled in trading ideas which lead to profits for themselves or for clients who wish to invest only in fixed income.

They closely work with other specialized traders, research teams or fund managers who contribute in developing and designing trading strategies which align the objective of the client with that of the firm.

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In the trading profession, most traders or asset management companies specialize in one particular domain of investment based on the knowledge and resources they have at their disposal or depending upon the kind of market or clientele they want to deal with. Therefore, there are categories such as a trader in commodities, equities, alternative investmentsAlternative InvestmentsAlternative investments refer to investments made in assets classified as non-traditional investment vehicles.read more, fixed incomeFixed IncomeFixed Income refers to those investments that pay fixed interests and dividends to the investors until maturity. Government and corporate bonds are examples of fixed income investments.read more, or 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. read more.

Overall, these traders play a very vital role in mobilizing funds in the financial market. With their necessary skill and knowledge, they help clients and firms achieve the profits through systematic investment in fixed income opportunities.

Skill Required to Become a Fixed Income Trader

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What Does A Fixed Income Trader Do?

  • If the fixed income trader is dealing with his own investment portfolio, then he may have to do several hats, such as that of the trading strategy developer, portfolio managerPortfolio ManagerA portfolio manager is a financial market expert who strategically designs investment portfolios.read more, and trade executioner.
  • If he works for a boutique investment firm, then he might have to work with a portfolio manager who has the responsibility of deciding how much of the portfolio goes into which type of securities after analyzing the IPS of the clients, and within the domain, the strategy is developed by the trader who undertakes the execution to fulfill this strategy.
  • However, if the firm is a large asset management group such as BlackRock, then there is a greater division of labor, and in such a case, there might be a separate strategy department related to fixed income trader jobs to manage the high quantum of assets they possess.
  • Such firms have a fiduciary duty, which implies that the clients give them discretion on their investments, and therefore they need to act in the best interest of the clients. In such an environment, the trader largely plays the role of trade executioner.
  • Apart from the execution responsibility, the trader needs to keep a constant eye on the portfolio performance and see whether the portfolio has drifted from the goals set in the IPS and the trading strategy specified. If such is the situation, then it is the duty of the trader to rebalance the portfolio and bring it back on track.

Therefore, the role of the trader can be summarized as per the following smart art:

Role of the Trader

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At the core, we have execution, and secondary to that, and we have monitoring and rebalancing. Apart from these two responsibilities, fixed income trader jobs involve high-level roles of strategy development and portfolio management are as per the quantum of the portfolio, the larger the quantum, the lesser are the chances that these two responsibilities will fall under the purview of the trader.

Skill Required

Let us learn about some of the skills required in a fixed income trader resume in order to become a trader in fixed income market which will help them to achieve the client’s and the firm’s objective strategically.

#1 – Technical knowledge

The trader should understand the valuation of fixed income investmentFixed Income InvestmentFixed income investment is a type of investment in which the investor receives a fixed and relatively stable stream of income in the form of dividends or interest over a period of time. Companies and governments typically issue fixed investments in the form of debt securities.read more and their payoffs very well. There is a wide range of products encompassed by in this domain, such as government and corporate debt, Collateralized Debt ObligationCollateralized Debt ObligationCollateralized 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.read more (CDO), Collateralized Mortgage ObligationCollateralized Mortgage ObligationCollateralized Mortgage Obligations (CMOs) are a debt-security type that combines many mortgages & sell them as a single investment. Cash flow occurs when debtors repay the loans, following which the CMO investors get their returns. read more (CMO), Collateralized Loan Obligation (CLO), Mortgage-backed securities (MBS) or Asset-backed securitiesAsset-backed SecuritiesAsset-backed Securities (ABS) is an umbrella term used to refer to a kind of security that derives its value from a pool of assets, such as bonds, home loans, car loans, or even credit card payments.read more (ABS) such as the bonds backed by credit card loans or student loans and so on.

#2 – Market Knowledge

#3 – Movement Analysis

As mentioned above, monitoring and rebalancing is an important aspect of the roles and responsibilities of the trader. In a fixed income trader resume there should be the skills to analyze the market as and when it moves away from his predictions and take charge of rebalancing the portfolioRebalancing The PortfolioPortfolio Rebalancing is reallotment of the assets according to their performance in the past period and desired results. This is done by divesting in the low performing assets and investing more in the best performing ones.read more accordingly.

Education & Qualification

Salary

As for any job, the salary can vary from one region to another depending upon several factors such as the cost of living, job requirements, growth prospects, industry standards, and so on. However, as per payscale.com, the average salary is $89,396 before taxes and deductions and the additional compensation such as bonuses and profit-sharing components, which may depend on the company policy.

Job Description

It is extremely important for these traders to remain updated regarding the constant changes in the financial market, which is evolving continuously. They should be well informed about the latest industry trends, political and economic developments or any changes in the rules and regulations related to investments.  The job description involves the following:

  • They have the responsibility monitor the financial trends of these securities and understand concepts like interest rate movements , credit spreads, which will help them to identify opportunities for trading and earning profits.
  • They need to execute the trades which involve buy or sell orders on the clients’behalf, to get the best possible price.
  • They should know how to manage downside risk rrelated to interest rate, credit or liquidity. They main aim is to earn maximum return with minimum risk.
  • They need to design strategies and implement them, which should align with the objective of the business and the client, based on changing market conditions.
  • It is necessary for them to have good relation with clients to enhance business opportunities and develop customer satisfaction.
  • Documentation and reporting is an important part of their job. They should maintain detailed and accurate information of each trade taken and ensure that they comply with the regulatory and legal requirements.
  • In order to minimize risk exposure, they should have good knowledge about hedging strategies.
  • These traders should keep track of any new technological advancement in the field of fixed income investments, new softwares and tools for better and faster data analysis which will increase accuracy and save time.

Thus, their job description involves actions that are crucial in the financial industry because they impact the results of investment of both individual and institutional clients.  

Job Prospects

They have good job prospects in the financial market due to the following reasons.

  • Fixed income trading is a perennial profession as no matter how well an economy does, and there is always a demand for fixed income instruments because every investor wants some portion of her money to be invested in secure investments for saving up for a comfortable retired life
  • The job prospects increase when the economy is slowing down and reduce modestly when it is booming but do not get eliminated completely.
  • Further, the demographics of the country also determine whether there is an uptrend in the job prospects because when there is a higher demographic dividend, that is, the population is younger, they can bear the risks and therefore, investment in equity increases such as the population of India, but when the population is aging, investment in fixed income securities increases, such as the case with Japan.

The job involves a very competitive and tough hiring process. Therefore, it is important to pursue the career path with a lot of dedication and persistence. The candidates interested in working in this field may also start with a small but related role in any financial institution which may become the stepping stone to the career as fixed income trader.

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