eFinancialCareers

A high stakes game of ups and downs.

Every day, millions of financial products are traded in the secondary markets where traders buy and sell financial products after their initial issue. (That happens in what’s called the ‘primary market’ – see our ‘capital markets’ section.) In the secondary markets, salespeople advise clients on investment opportunities, while traders carry out the actual buying and selling of securities.

The secondary markets are broadly divided into two categories, equities (stocks and shares) and fixed income (corporate credit, government debt, currencies and interest rate products). Within these sectors is a whole range of ‘exotic’ derivative products whose value is dependent on the underlying security.

Key players

In spite of its recent sub-prime related problems, UBS continues to rule the roost in the equities space, and its revenues from equities trading increased by 37% in 2007. Deutsche Bank and Barclays Capital are top in fixed income trading, according to a report by Greenwich Associates. JPMorgan also has a strong presence in this area.

Roles and career paths

Traders track the markets and buy and sell the products at the touch of a button. Salespeople advise their clients – who might be rich individuals, pension funds or other institutional investors – when to buy and when to sell financial securities. Researchers, known as analysts, produce reports on the advisability of investing in various asset classes or companies.

At a basic level, there are several different types of traders. The vast majority are low traders, who buy and sell financial products on behalf of the bank’s clients. Proprietary (or ‘prop’) traders are a select group of elite traders who are given licence to trade the bank’s own money.

Some banks and hedge funds employ pure ‘execution traders’ who do little more than place trades on behalf of analysts and fund managers. Execution traders are paid a lot less and are typically seen as a support function. Finally, sales traders are a kind of hybrid between salespeople and traders – they recommend products to clients and then execute trades resulting from their recommendations.

Research roles tend to focus on particular asset classes, so you could be analysing pharmaceutical companies, or looking at macroeconomics in the rates or foreign exchange space. Salespeople also focus on particular asset classes and particular clients. Leonardo Arduini, global head of rates sales at Citigroup, says: “A salesperson in financial markets is not selling used cars. It’s more complex, you have annual goals in terms of positioning, market share and customer feedback, revenues and a whole range of other metrics.”

Pay

Top of the pile in trading are proprietary (prop) traders, who earn massive bonuses as an incentive to stop them jumping ship and going it alone or moving to a hedge fund. Successful prop traders have been rumoured to earn as much as $50m in bonuses. However, after big losses on some prop desks, this may not be the case in 2008.

In the low trading space, those on exotic derivatives desks earn the most. Executive search firm Napier Scott says managing directors in equity derivatives can earn £140k basic with a £1.25m bonus. Even at associate level they earn £65k plus a £125k bonus.

It’s the same in sales, and an MD working on equity derivatives in France or Belgium can earn €160k with a €1m bonus and a similar figure is possible in Italy.

Equity derivatives trading compensation 2007
Salary + bonus, top-tier bank London
Managing director: £125k + £930k
Executive director: £115k + £615k
Director: £110k + £540k
Associate director: £80k + £225k
Associate: £60k + £75k
Source: Napier Scott

Equity researchers don’t earn anywhere near these lofty heights. Figures from the Options Group reveal that a researcher in London can earn £30k-£35k in the first year, rising to £50k-£65k at associate level with a potential £75-£125k bonus.

Skills

Traders need a keen sense of risk and reward, an understanding of the dynamics of the markets and an analytical mind. If you’re trading complex derivatives you’ll also need the mathematical ability to understand the products themselves.

They are two very different skill sets, says Charles Bristow, MD, rates trading, at JPMorgan: “Just because the product you’re trading has relatively little mathematical complexity to it doesn’t mean that the job itself is simple.

In these roles, the dynamic of what you’re trading becomes the most important thing, and the degree of analysis of the underlying market will tend to increase a lot.”

Georgina Ferro, executive director, equity research at J.P. Morgan, says researchers need more than just analytical skills: “You’ll be working on complex analytical models of company fundamentals, so a good grounding in maths, economics or accountancy is key. But excellent communication skills, both written and oral, are important, as are inter-personal skills. You’ll be liaising with traders, salespeople internally, as well as talking to company directors, industry experts and clients externally.”

The numerical and technical skills hold true for sales roles as well, but it’s much more of a people role, says Arduini. “Get a good grounding in the technical elements early in your career – the various asset classes and an understanding of market volatility. However, to be a good salesman you need to have excellent customer-facing skills and a passion for developing and maintaining relationships. It’s a dificult skill to teach – you must have fire in the belly.”

Click here to read the profile of an analyst in equity research.

Click here to read the profile of an associate in sales.

Click here to find out about global trends in the sales, trading & research sector.