SALES AND TRADING
Usual Questions about Sales & Trading
Floor brokers vs. traders
The buy-side vs. the sell-side
Hedge Funds: What Exactly Are They?
Useful Docs for 2004 On
S&T Job Hunting Guide
Market Summary Excel Tool
Deutsche Bank Global Markets Summer Associate Program 2005
The war zone
If you've ever been to an investment banking trading floor, you've witnessed the chaos. It's usually a lot of swearing, yelling and shouting: a pressure cooker of stress. Sometimes the floor is a quiet rumble of activity, but when the market takes a nosedive, panic ensues and the volume kicks up a notch. Traders must rely on their market instincts, and salespeople yell for bids when the market tumbles. Deciding what to buy or sell, and at what price to buy and sell, is difficult with millions of dollars are at stake.
However, salespeople and traders work much more reasonable hours than research analysts or corporate finance bankers. Rarely does a salesperson or trader venture into the office on a Saturday or Sunday, making the trading floor completely void of life on weekends. Any corporate finance analyst who has crossed a trading floor on a Saturday will tell you that the only noise to be heard on the floor is the clocks clicking every minute and the whir of the air conditioner.
Here's a quick example of how a salesperson and a trader interact on an emerging market bond trade.
SALESPERSON: Receives a call from a buy-side firm. The buy-side firm
wishes to sell $10 million of a particular Mexican Par government-issued
bond (denominated in U.S. dollars). The emerging markets bond
salesperson, seated next to the emerging markets traders, stands up in
his chair and yells to the relevant trader, "Give me a bid on $10 million
Mex Par, six and a quarter, nineteens."
TRADER: "I got 'em at 73 and an eighth."
Translation: I am willing to buy them at a price of $73.125 per $100 of
face value. As mentioned, the $10 million represents amount of par value
the client wanted to sell, meaning the trader will buy the bonds, paying
73.125 percent of $10 million plus accrued interest (to factor in interest
earned between interest payments).
SALESPERSON: "Done. $10 million."
Individuals working in a sales & trading department of an investment bank are not investment bankers, nor do they work in investment banking. Instead, they are either sales brokers or traders who work in sales & trading. There is a division or "Chinese Wall" between these areas, where information flow is minimized to promote and protect propriety in business operations.
Professionals in S&T are oriented strongly toward analysis and enterprise control rather than managing people. They enjoy abstract financial analysis and the ownership of the 'deal' process.
Recruiters also want people who have high stamina levels and a hunger for learning, and who are confident, poised, energetic, and willing to make personal sacrifices.
Almost all recruiters look for the following specific qualities:
Strong analytical and quantitative skills
Assertive and entrepreneurial nature
Ability to learn, think, and react quickly
Keen attention to detail
Strong familiarity with business computer applications
Ability to work well in a team environment
Strong interest in finance, accounting, and corporate strategy
Ability to read, understand, and use financial statements
Knowledge of industry trends, history, and the major participants
Sales is a core area of any investment bank, comprising the vast majority of people and the relationships that account for a substantial portion of any investment banks revenues.
The institutional salesperson manages the bank's relationships with institutional money managers such as mutual funds
or pension funds. Institutional sales is often called research sales, as salespeople focus on selling the firm's research to institutions.
Some firms only hire MBAs for sales jobs. Other firms don't even ask about your education. In either case, the bottom line is how well can you sell the new debt and equity issues the Investment Banking side unloads on your desk--and how quickly you can translate news events or a market shift into transactions for your clients. These jobs are usually much less hierarchical than the banking side. Your sales volume and asset growth are what matter. Salary range: $40,000, with a $5,000-plus signing bonus for undergrads; MBAs start at $85,000, with a signing bonus of up to $30,000. Year-end bonuses fluctuate; they can be as high as 80 to 100 percent of base pay.
The institutional salesperson's day begins early. Most arrive at 7 a.m. having already read the morning papers. Each day a package of research is delivered to the salesperson's chair, so reading and skimming these reports begins immediately. The morning meeting at 7:30 involves research commentaries and new developments from research analysts. The trading meeting usually begins 20 minutes later, with updates on trading positions and possible bargains for salespeople to pitch.
At 8 a.m., the salesperson picks up the phone. Calls initially go to the most important of clients, or the bigger clients wishing to get a market overview before trading begins. As the market approaches the opening bell, the salesperson finishes the morning calls and gets ready for the market opening. Some morning calls involve buy or sell ideas, while others involve market updates and stock expectations. At 9:30, the markets open for business, and salespeople continue to call clients, scrutinize the market, and especially look for trading ideas throughout the day.
Lunchtime is less critical to the salesperson than the trader, although most tend to eat on their desk on the floor. The afternoon often involves more contacting buy-siders regarding trade ideas, as new updates arrive by the minute from research.
The market closes abruptly after 4:00 p.m. By 4:01, many salespeople have fled the building, although many put in a couple more hours of work. Salespeople often entertain buy-side clients in the evening with ball games, fancy dinners, etc.
When Hollywood directors want to portray the rough, unruly underside of Wall Street, they wheel the cameras onto a trading floor. This is as close to the money as you can get. Trading also commands respect because it's tougher, riskier, and more intense than any other job in finance. Traders manage the firm's risk and make markets by setting the prices--based on supply and demand--for the securities the Investment Banking side has underwritten. Like sales, but more so, you're tied to your desk and phones while the markets are open--but you get to leave after the closing bell.
The players in the trading game depend on the firm. There are no hard and fast rules regarding whether or not one needs an MBA. The degree itself, though less applicable directly to the trading position, tends to matter beyond the trader level. Managers (heads of desks) and higher-ups are often selected from the MBA ranks. A few traders even grow up to be CEO. Why? Because they know more about the markets and the money than anyone else in banking.
Range is similar to that in sales.
The Block Trader - These are the folks you see sitting on a desk with dozens of phone lines ringing simultaneously and four or more computer monitors blinking, with orders coming in like machine-gun fire. Typically, block traders or flow traders deal in active, mature markets, such as government securities, stocks, currencies and corporate bonds. Traders historically are hired based on work ethic, attitude and street-smarts.
The Sales-trader - A hybrid between sales and trading, sales-traders essentially operate in a dual role as both salesperson and block trader. While block traders deal with huge trades and often massive inventories of stocks or bonds, salestraders act somewhat as a go-between for salespeople and block traders and trade somewhat smaller blocks of securities. Different from the pure block trader, the sales-trader actually initiates calls to clients, pitches investment ideas and gives market commentary. The sales-trader keeps abreast of market conditions and research commentaries, but, unlike the salesperson, does not need to know the ins and outs of every company when pitching products to clients. Salespeople must be thoroughly versed in the companies they are pitching to clients, whereas sales-traders typically cover the highlights and the big picture. When specific questions arise, a sales-trader will often refer a client to the research analyst.
The Structured Product Trader - Structured product traders deal with derivatives, credit derivatives and other more complex forms of debt (CDOs, CBOs, CLOs, ABS, etcE
Because of their complexity, these products typically require substantial time to price and structure, so foster an entirely different environment than that of a block trader who deals with heavy trading flows and intense on-the-spot pressure. Structured product traders usually work longer hours than their counterparts in other markets, as they don't demand an open market to price their securities.
Some Usual Questions about Sales &
Floor brokers vs. traders
Often when people talk about traders, they imagine frenzied men and women on the floor of a major stock exchange waving a ticket, trying to buy stock. In fact, these traders are really floor brokers, who follow through with the execution of a stock or bond transaction. Floor brokers receive their orders from actual traders working for investment banks.
As opposed to floor brokers, traders work at the offices of brokerage firms, handling orders via phone from salespeople and investors. Traders either call in orders to floor brokers on the exchange floor or sell stock they actually own in inventory, through a computerized system called an over-the-counter (OTC) system. Floor brokers represent buyers and sellers and gather near a trading post on the exchange floor to literally place buy and sell orders on behalf of their clients. - On the floor of the NYSE, these mini-auctions are handled by a specialist, whose job is to ensure the efficiency and fairness of the trades taking place.
The buy-side vs. the sell-side
The traditional investment banking world is considered the sell-side of the securities industry. Why? Investment banks create stocks and bonds, and sell these to investors. Sell is the key word, as I-banks continually sell their firms' capabilities to generate corporate finance business, and salespeople sell securities to generate commission revenue.
Who are the buyers of public stocks and bonds? They are individual investors (you and me) and institutional investors, firms like Fidelity and Vanguard. The universe of institutional investors is appropriately called the buy-side of the securities industry.
Yet another class of buy-side firms manage pension fund assets - frequently, a company's pension assets will be given to a specialty buy-side firm that can better manage the funds and hopefully generate higher returns than the company itself could have.
Hedge Funds: What Exactly Are They?
Hedge funds are one sexy component of the buy side. Since the mid-1990s, hedge funds popularity has grown tremendously. Hedge funds pool together money from large investors (usually wealthy individuals) with the goal of making outsized gains.
Historically, hedge funds bought individual stocks, and shorted (or borrowed against) the S&P 500 or another market index, as a hedge against the stock. (The funds bet against the S&P in order to reduce their risk.) As long as the individual stocks outperformed the S&P, the fund made money. Nowadays, hedge funds have evolved into a myriad of high-risk money managers who essentially borrow money to invest in a multitude of stocks, bonds and derivative instruments (these funds with borrowed money are said to be leveraged). Essentially, a hedge fund uses its equity base to borrow substantially more capital, and therefore multiply its returns through leveraging.
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