eFinancialCareers

The multi-millionaire 'second hand' market traders.

The aim of the secondary markets is to buy and sell 'used' financial products to make a profit – or at least to avoid a loss. This compares to the 'primary market', where institutions issue new financial products to raise money. Every day, millions of financial products are traded in the secondary markets. Sales people, traders and researchers advise on and carry out these sales.

• Traders: these are the people who actually buy and sell. They get up early to be at their desks when the markets open at 8am and spend their day in front of computer screens with hundreds of other traders on the 'trading floor'. The screens are a window onto the financial markets and show movements in the prices of shares, bonds, commodities and other financial products.

At the touch of a button, traders can buy and sell the products they're tracking.

• Sales people: sales people work the phones, calling clients – rich individuals, pension funds and institutional investors – from the moment the markets open. They take orders for financial products which they pass on to flow traders, who buy the products. Midway between the sales people and traders exists a hybrid – the 'sales trader'. Like sales people, they call clients to recommend securities; like traders, they can also trade the securities.

• Research: researchers, also known as analysts, report on trends in company share prices, industry sectors or the prices of bonds or other assets. Sales people use the information to advise clients on investing in that sector. Researchers spend their time scouring companies' balance sheets and talking to company directors.

Trends

Sales, trading and research people at investment banks are being buffeted by distinctly different trends. In sales, the emphasis is on selling complex derivative 'solutions' which have been created specifically to fulfil clients' needs – rather than simply selling bog-standard equities or bonds. At the same time, banks have begun beefing up with people who can sell products into hedge funds – hedge funds trade more frequently, so there's more money to be made selling to them!

Traders, meanwhile, have been on something of a roll. At Goldman Sachs, traders account for the bulk of revenues – 74% of first-quarter 2007 profits at the bank were derived from trading and principal (private equity style) investments. And banks are now trading a broader range of products – commodities are the latest hot favourite. Researchers have had a harder time. Brokers selling equities must now reveal how much of their commission covers research costs – and buyers don't always want to pay up. As a result, equity researchers in banks are increasingly forced to justify their existence. Some have opted to join independent research houses instead.

Key players

If Goldman is the king of proprietary trading, UBS wears the crown in equities trading and research. In 2007, it won the Thomson Extel Award for pan-European equity research for the seventh year running; Citi came second and Merrill Lynch came third.

What UBS is to equities, Deutsche Bank has traditionally been to European fixed income, but the German bank is increasingly being challenged by newcomers such as Barclays Capital. At the same time, Deutsche has followed Goldman down the trading path – 41% of first quarter 2007 revenues came from trading activities.

Roles and career paths

There are two fundamental types of trader: proprietary traders and flow traders. Most traders are flow traders – they buy and sell financial products on behalf of the bank's clients. Sales people tell flow traders what clients want to buy and sell; flow traders tell sales people whether a particular trade is possible at a particular price.

A handful of elite traders – the so-called proprietary traders – trade on behalf of the bank itself. Their aim is to buy low and sell high, an achievement that requires both judgement and luck. Proprietary traders can make stupendous profits – and also stupendous losses.

Progression in sales and trading is all about performance. "Following the graduate training programme, promotion is very much based on ability to perform," says Sally Whitman, head of specialist resourcing at Deutsche Bank.

Pay

Successful proprietary traders are some of the best-paid people working in investment banks. When the 2006 bonuses were paid out, rumour had it that one foreign exchange trader made £50m.

In the sales space, derivatives sales roles are the most lucrative – particularly those that involve selling to hedge funds. Pay figures from headhunter Napier Scott suggest that the very top salespeople in the hedge fund space made £1.35m in 2006. Few researchers make those amounts nowadays, by comparison

Skills

"You have to be analytical. You have to have genuine interest and curiosity in the markets and how they work; their dynamic and what makes them tick," says Jonathan Jones, EMEA head of recruiting at Goldman Sachs.

"You need also to have a sense of risk and reward, in the commercial sense, and the ability to keep calm under pressure. The hours will normally be reasonably civilised but the deadlines tend to be moment to moment rather than a few days."

To work in research, candidates need excellent interpersonal and communications skills and very strong written and analytical skills. Strong quantitative skills are also important and fluency in a second European language helps, says Veronica Elder, equities graduate recruitment manager, Europe at Credit Suisse.

All this holds true in sales trading too but, because it's a more client-facing role, you also need the ability to build and maintain relationships. "The markets can move fast so you need to be quick thinking, extremely organised, excellent with numbers, be able to work well under pressure and multi-task," Elder explains.

Richard Moore, EMEA head of campus recruitment at UBS, agrees: "Whether your clients are internal or external, you will need to have the ability to build relationships, listen and interpret accurately."