Career Roadmap

Sales & Trading

Overview

If you work in a sales, trading or research role, you will be immersed in a world of used goods. Salespeople, traders and researchers in investment banks are primarily concerned with the so-called 'secondary market' in which millions of existing financial products are bought and sold on a daily basis. This compares to the 'primary market' in which brand new financial products are issued by companies, governments and other institutions in order to raise money.

The spectrum of different jobs on offer in sales, trading and research is as broad as the number of financial products themselves. For example: salespeople may be equity salespeople or fixed income salespeople; traders might trade equity derivatives or government bonds; and researchers can be experts in analyzing emerging market debt, or in the bonds issued by companies on the verge bankruptcy. But while the products can be very different, the underlying principle behind each role remains the same.

Trading

Traders are the kings (and occasionally the queens) of the sales, trading and research triumvirate. They are the ones who actually buy and sell products on the financial markets. If they are very good, traders can usually earn more money than anyone else working in investment banking. They make snap decisions worth many millions of dollars in the space of just a few seconds, and can make substantial profits in the process.

At first glance, the day to day existence of a trader bears little resemblance to their ostentatious image. Unlike their colleagues in M&A, traders rarely fly around the world, and infrequently go out for business lunches. If you work as a trader you can instead expect to spend your working hours seated before an array of computer screens in the company of hundreds of other traders on the 'trading floor'. The screens are a window into the financial markets, and show movements in the prices of shares, bonds, commodities and other financial products. Banks' computer systems are linked into these markets: at the touch of a button, traders are able to buy and sell the products whose prices they are tracking on the screens.

As well as monitoring prices, traders also keep a close eye on world news. A terrorist attack in Saudi Arabia, or the release of higher than expected unemployment figures in the United States can have an immediate effect, prompting a flurry of buying and selling as investors seek to optimize their portfolios to take account of the new state of affairs.

The Job of a Trader

There are two basic types of trader: proprietary traders and flow traders. Most traders are flow traders, who buy and sell products on the financial markets on behalf of the bank's clients. Flow traders work in close contact with the bank's salespeople, who let them know clients' purchasing and selling intentions. In return, flow traders tell salespeople whether a particular trade is possible at a particular price.

Once a client has agreed to buy or sell a product at a price quoted to them by the salesperson, flow traders are obliged to make the trade at that price. They must therefore act quickly in case prices rise, leaving the bank to sell the products on at a loss. If traders are able to buy the product a price lower than that quoted to the client, the bank makes a profit.

While flow traders trade on behalf of clients, a handful of elite traders trade on behalf of the bank itself. These are the so-called 'proprietary traders'. Their basic aim is to buy at low prices, and sell at high prices, an achievement which requires both judgment and luck. Proprietary traders can make stupendous profits; they can also make considerable losses.

Fortunately, proprietary traders are not personally liable for misjudged trades which result in large losses. However, if they make large profits for the bank, it is usually reflected in their end of year bonus. Top proprietary traders are often paid a bonus equivalent to 10% of their profits during the year.

Sales

While traders spend their days glued to computer screens, salespeople spend their time working the telephones. The job of a salesperson involves talking to clients from the moment the financial markets open to the moment they close (as well as several hours before and after). Clients include rich individuals, pension funds, and institutional investors. Salespeople take orders for financial products, which they then relay to the flow traders who buy the products on the financial markets.

Salespeople need charm and persuasiveness: clients often need to be encouraged to purchase particular products, and salespeople might just as easily phone up for a friendly chat to discuss events in the market, as to plug 20,000 shares in a particular company. Jean-Remi, an equity derivatives salesman at Dresdner Kleinwort Wasserstein in Paris, says communication skills are an important part of the job: 'The sales desk is the mediator between clients and the trading floor. We talk to the clients about what's happening in the markets and help them formulate their strategy. We also talk to traders, who give us prices and tell us which trades are and aren't feasible in terms of risk. It's a question of coming up with a suitable compromise.'

Research

Researchers exist largely for the benefit of salespeople. If you work in research, you will produce written reports on, for example, trends in the share prices of American  lampshade manufacturers. This report will then be read by the people in sales who might then suggest investing in lampshade manufacturers to their clients.

Research reports are also disseminated to clients directly, as well as being read by the bank's traders. Researchers spend their time scouring companies' annual results, and participating in conference calls where companies discuss anything which might influence their profitability and the prices of their shares or bonds.

People who work in research need to be numerate, independent thinkers who can write coherently in English. The head of fixed income credit research at one bank said: 'The ability to communicate an original investment idea clearly and precisely in what is often a jargon-filled and complex space, distinguishes a good researcher from a bad one.'

Researchers have had a bad press in recent years. In 2002 Eliot Spitzer, the New York state Attorney General, imposed fines totaling $1.4 billion on ten American banks following accusations that they had produced biased research during the internet boom. Famous researchers such as Henry Blodget at Merrill Lynch and Jack Grubman at Citigroup were accused of portraying companies in unjustly flattering terms in the hope that those companies would then use the bank's capital markets services when they wanted to issue shares.

Following the Spitzer investigation, this practice has been strictly outlawed, and banks are trying hard to make their researchers scrupulously unbiased. However producing unbiased research isn't particularly profitable. Now that capital markets clients are no longer subsidizing the research function, there are questions about who will pay for it instead. Clients might, were it not for the fact that they are disillusioned with banks' biased research output, are increasingly hiring their own researchers to work in house. The matter is yet to be resolved.

Jobs

Most banks train graduates to work in sales, trading or research roles. To provide a solid grounding in how the roles fit together, trainees often rotate between the three types of job during training. However, banks look for candidates who want to be either a salesperson, or a trader, or a researcher. The skills required for each role are very different.

A recruiter at Goldman Sachs, said traders typically have a better grasp of calculated risk taking and are better with numbers and mental arithmetic than salespeople and researchers. A graduate recruiter at Morgan Stanley, said the bank looks for numerate, technically minded, high energy types to be salespeople and traders. She said researchers need to excellent presentation and communication skills and an inquisitive approach.

(Source: eFinance)

Print Resources available in the CDO

bschooljobs.com Flash Cards-investment banking interview preparation flashcards.

Careers in Financial Services

Fast Track: The Insider's Guide to Winning Jobs in Management Consulting, Investment Banking & Securities Trading

Galante's Venture Capital & Private Equity Directory - provides in depth profiles of over 1,700 venture capital, mezzanine, and buyout firms. Available in hard copy and CD.

Harvard Business School Career Guide: Finance - career opportunities, company profiles, position descriptions and recruiting process.

Hedge Me

Nelson's Directory of Investment Managers - profiles of over 2,600 organizations involved in investment management.

Plunkett's Financial Services Industry Almanac - information on leading firms in Investments, Insurance, Banking and Finanical Information.

The VC Way

WetFeet Guides

Online Resources

Thedeal.com

Investor Dealers Digest

Institutional Investor

WetFeet

Vault.com

Bloomberg Terminal

Wall Street Journal

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