Many times youngsters, who are pursuing financial degrees, come to me asking what all different type of jobs or opportunities are available within trading.
They only are aware that trading means buying and selling financial instruments for a profit. But they are not sure as to exactly what they can expect as a trader.
I thought I would write a quick article which will help you guys clear this doubt.
Here I will explain the different types of trading jobs that a financial graduate can get. But first let’s understand what exactly trading is.
Believe me when I say that in today’s world, the job of a trader can be very demanding, taxing, and exciting all at the very same time but the emoluments could be absolutely fantastic for traders who are very successful.
Confused? Well let me try to explain it a bit more.
Let’s start with what exactly trading jobs are.
Trading jobs usually include the activity of buying and selling shares of listed companies, financial bonds issued by various organizations or government, exchange traded commodities, foreign exchange or similar other monetary instruments to either assist client requests or to take a proprietary position in an anticipation to gain from probable market activities.
You must have heard about buy side jobs and sell side jobs. Now what exactly are these? The buy side of the business is the side which buys financial instruments, while the sell side is the side which sells financial instruments.
To put it in a very easy way – just remember that the buy side buys, and the sell side sells! So the question is what is the buy side trader buying and what is the sell side trader selling?
The buy side of trading includes working with financial organizations such as commercial banks, mutual fund companies, hedge fund companies, pension fund companies and insurance companies which typically purchase huge quantum of financial instruments for the purpose of money management.
The prime aim of a buy side analyst is to invest in financial instruments which congregate with his customer’s expectations. Typically a buy side analysts’ research report is not published but it is used to assist the specific organization which created the report.
On the other hand, a sell-side analyst is involved in selling research and counsel to his clients and investors. If you look at an equity research report that tells you to buy, sell, or hold the financial instrument –this report is typically written by a sell-side analyst. The sell side of trading includes working with financial organizations such as investment banking, asset management companies and hedge fund companies.
So now that we know what exactly a trading job is, let’s try to figure out where these trading jobs are!
Where Do You Find a Trading Job?
You can get financial trading jobs with various companies including commercial banks, brokerage firms, investment banks, hedge funds, asset management firms, and similar financial organizations.
Traders at commercial banks and investment banks need to center upon providing liquidity for their customers and earning profits for their companies.
On the other hand, traders who work with asset management companies look out for the best price while buying or selling financial instruments for their customer’s portfolios. While the traders who work with hedge funds typically take proprietary positions to profit from likely changes in market activities.
OK. Now let’s go to the next step. Now that you know what exactly a trading job is, how do you get a trading job?
How Can You Get a Trading Job?
The first requisite to get a trading job is to graduate from a reputed school or university and take an internship at a commercial bank or a hedge fund to learn the nuances of the trade.Most traders typically have a graduate degree, while now days many traders have advanced financial degrees like CFA, CPA and MBA.
Due to the growing use of advanced mathematics and statistics in the financial markets, even post graduates and doctorates from various mathematical and statistical fields are also common in trading related jobs.
The Series 7 and Series 63 are normally the licensing tests that a person must pass in order to become a stock trader.
Usually, a trader will begin his career with a financial organization in a junior position as an intern and then an assistant trader before working his way up to become senior or an experienced trader.
Many times, most of the successful traders in due time,end up starting their own trading companies.
The Different Types of Trading Jobs That an Analyst Can Get Are:
#1. Buy-Side Trading Jobs
Typically you will get buy side trading jobs with financial institutes such as Mutual Funds, Hedge Funds and Private Equity.
You could also get trading job opportunities with buy side organizations such as asset management firms.
Portfolio managers working with certain asset management companies would buy and sell financial securities on their own.
But in other cases, the portfolio managers could choose which securities to buy or sell but then provide directions to traders who would then actually do the process of buying and selling financial instruments.
As they are mostly following the orders given by the portfolio manager, traders at buy side firms often possess limited discretion in their actions than other traders who work in other types of companies.
But, this does not mean that these traders do not have any discretion at all.
For example, the portfolio manager could specify that he wants to purchase a specific financial instrument, but it is the trader’s prerogative as to when and at what price to purchase the financial instrument.
Further a portfolio manager could specify that he wants to purchase a particular type of instrument but leave the decision to choose a specific instrument and time of the purchase with the trader.
However, the job of a buy side trader is frequently to get the best value for the portfolio manager within specified parameters, making thiswork a little less demanding than other trading jobs.
#2. Sell-Side trading jobs
You will get sell side trading jobs with financial institutes such as investment banks.
Sell side trading jobs can be also got at commercial banks and investment banking firms.
The key trading activity at sell side firms includes buying and selling of financial instruments for the benefit of its customers.
Sell side traders do not utilize their own research, but their aim is to sell their research reports to other investors.
Typically, their research reports are sold to the buy side analysts.
So you can say that the buy side analysts are the customers for the sell side analysts.
The main differentiation between buy side and sell side traders is the role of marketing.
Sell side analysts use a great amount of time interacting with existing customers and possible new customers about their research.
Their job is to persuade buy side analysts that their findings are worth paying for.
The sell side trader has been under pressure in the last couple of years, as a lot of key developments, including the financial crisis and the brisk technological development in the financial markets, have resulted in the sell side trader’s role to evolve swiftly.
Due to money pressures, investment firms have to decide between traditional and automated trading.
Some investment firms have opted for a mix of the two.
The operating cost of a traditional sales desk could be quite material, and this could lead to increased use of technology and reduction of labor.
This reducing tendency of banks to take risk may help the financial system on a whole, but it probably means that individual sell side traders at banks could be compensated less in the future.
#3. Jobs with Hedge Fund companies
You can also get a trading job with hedge funds.
These jobs could include taking instructions from various portfolio managers or using own discretion to decide which securities to buy and sell.
Unlike analysts who are employed at sell side firms, hedge fund traders do not attempt to satisfy customer requests but instead aim to benefit from forthcoming market movements.
For this job you should have an aptitude for mathematics and statistics, capability to react rapidly to shifting conditions, the strength to endure market instability and the capability to take fast choices based upon partial information.
But remember one thing, as hedge fund traders usually taking more risks, the possible rewards are also greater, but then so are the stress levels.
Most of the times you will see that good hedge fund traders eventually set up their hedge funds to really mint money.
Analysts who consider jobs with hedge funds should be prepared to take risks with big sums of money on a daily basis and be contented with the likelihood that if their performance is not good for a long period of time they might actually be fired.
Remember that successful traders are always hugely passionate about what they do and always use their time studying the financial markets.
If you think that whatever I have explained above excites you, then a career in trading may be right choice for you.
Believe me there is not going to be any better success key than hard work.
If you have any questions regarding this article please feel free to touch base with me and as usual I’ll be more than happy to help.
Image Source: businessinsider.com