Traders make money by buying and selling stocks, bonds, currencies, commodities and other sophisticated financial instruments such as derivatives.
Put simply, traders essentially place bets on where they believe the opportunities lie to make money.
Traders are found across the finance industry from ‘sell-side’ organisations such as commercial banks, investment banks and hedge funds to ‘buy-side’ organisations such as asset and funds management firms.
A sell-side trader may act either as a broker, that is trading on behalf of clients, or by using their organisation’s own capital, known as proprietary or ‘prop’ trading. At buy-side organisations, traders are given direction from portfolio managers about what to buy and sell. While a trader might have some freedom about the timing and price at which to trade, the portfolio manager often specifies the security itself. Having parameters to adhere to can make trading on the buy-side less challenging and this is reflected in the relatively lower financial rewards compared to the sell-side.
Trading can be a volatile business – losses can be made overnight in global markets but at the same time, there is a huge potential upside when successful trades are executed.
There are also organisations, such as Optiver, that specialise in algorithmic trading. Algorithmic trading uses computers to execute trades based on a set of instructions, for example, to take advantage of momentary price differentials or statistical patterns as they occur. Algorithmic trading allows trades to be made faster and more frequently than humans are capable, which in turn increases the potential for greater profits.
As a graduate, you will typically specialise in one asset class. For example, at a medium-sized organisation, you might focus on government bonds, whereas at a larger organisation, you might specialise further and trade only ten-year government bonds.
Typically, your day-to-day responsibilities will include monitoring the profits and losses of a trading desk, analysing how prices of products traded might change or ensuring all trades are entered into the organisation’s system. Being comfortable in a fast-paced and intense environment is critical – you may be asked at a moment’s notice to determine a specific yield or bond price!
The first five years as a trader are often considered the most challenging and with the steepest learning curve. As you become more experienced, you begin to make your own trades.
Relative to other parts of an investment bank or hedge fund, traders typically have a greater work-life balance. Working primarily when markets open, their working days can be intense and busy – traders are usually at their desk very early and stay there all day. However, most traders enjoy weekends and holidays when the markets are closed.
As with many other specialisations within investment banking, one’s career progression as a trader is largely determined by performance. The pressure to perform and deliver consistent results is immense.
Most traders stay on to become career traders, moving between organisations or for example, from a bank to a hedge fund. Many traders specialise in whatever asset they began trading in as a graduate. Trading is very much an independent career and once you are responsible for your own trades, your day job will continue to be very similar as you become more senior.
Trading will be an interesting specialisation to watch as key processes, such as the scheduling and execution of trades, are transformed by increasing automation.
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