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Trader

Joined
2/21/10
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50
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Hello!

I'm interested what exactly the job of a trader is. As I know he/she just executes orders. So why does he/she need to make prediction about the market???

Thanks
 
There are different types of traders. Some trade purely off of customer flow, providing liquidity to the market, usually for a small spread and taking few positions. Others trader in a proprietary fashion, positioning to take advantage of market moves. Many are a combination of the two.
 
Example: customer calls you up and wants to buy 5000 shares of a stock.

So... should you fill it quickly? Slowly? Using limit or market orders?

If you fill it slowly, you run the risk of the market moving against you; your average price will go up if the price goes up.

If you fill it quickly, you may miss out on an opportunity to fill the order at a lower price if the price goes lower.

If either of these things happen, at the very least your customer will call you up and yell at you. If you fill the order directly out of your inventory, you will be exposed to prop risk and could directly lose the difference between the fill price and the customer's price.

This is just a small taste of what a trader might think about...
 
...and a little practical advice on being an equity trader now...

 
Being a trader does not necessarily mean being good at predicting price direction.

A day trader usually waits for a signal to be generated (she employes a trading system or a strategy) and then enter the market placing a profit target and a stop loss. (this applies to equity-futures-fx traders)

If you trade options is very different because this type of instruments allow you to trade eliminating the directional risk.

The above mentioned traders can be retail or proprietary traders.

On the other hand, If you are an institutional trader you negotiate the price in the first market.In other words, you literally make the price.

if you are a sell-side trader you are mainly providing liquidity to the market by selling and buying continuously and your profits are derived by the bid/ask spread but in the last case you would be called a "market maker".
 
nowadays, a day trader is the one that gets taken to the cleaners by the high frequency trader.
 
nowadays, a day trader is the one that gets taken to the cleaners by the high frequency trader.


that's so true !!!!

However in the previous list I forgto to mention execution traders: they get the order form the fund manager and they break it down into little pieces in order to get a favourable price and diversify risk.

Obviously, many algorithm can do that more efficiently and at a minor cost.
http://www.hypervolatility.com
 
Hopefully I can contribute a little here, at risk of repeating a lot of what others have said.

There are many different kinds of traders - all of whom have to be market savvy.

At one end of the sell-side spectrum you have your pure client flow trader who trades a liquid market, like cash equities (stocks), bonds, spot FX. These guys will make customers markets in these products and cover the positions they've been given in the broader market. Now even though they're covering their positions, they will lose money if they don't make the right bid/ask spread that will allow them to capture some profit on dealing with a customer and then covering - and they have to make a tight spread. For example, if a trader gets given a big position from a custy, it's not like he knows with 100% certainty at what rate he'll be able to offload that position in the market after he deals. This means he's got to deal at the right rate that captures where exactly the market currently is as well as his view on where the market will be after he deals. Many times offloading a position simply can't be done immediately and the trader will have to work out when/how to square up his position. Now even at this extreme end of the spectrum in which the trader always squares up his position, he needs to have some sort of a view on the market in order to make money.

At the other end of the sell-side are proprietary traders (really buy-side traders that work in sell-side institutions). These guys don't make markets - they just take positions. Hedge fund / buy-side traders (though not execution traders) work the same way. The only exception on the buy-side is that execution traders at hedge funds aren't actually taking the positions themselves. A PM (portfolio manager) decides what he wants to be done and the execution trader will call up sales desks at banks who will talk to their trading desks and will execute the PM's orders at the best possible rate. That could mean simply taking the best price they've been quoted or waiting for market conditions to change to get better pricing.

The majority of sell-side traders at banks are market-makers who serve client flow but who also take positions. Certainly there are pure prop desks (though I hear these may be spun off, generally), but I think you'd be hard pressed to find a trader who was 100% purely flow without ever having some position on. Naturally there is a wide range of to what extent market-makers will hold positions, and that will very depending on the bank, the desk, and the product(s) the desk trades. Generally derivatives trading desks will run larger positions as the products are less liquid and it can be literally impossible to perfectly square up your positions (or if it is possible you'd be paying away all the spread you've charged the custy in the first place). Another less obvious factor this may depend on is whether the desk's mandate is to make money or to just provide the service while not losing money. For example, maybe Bank XYZ makes a lot of money from Fund ABC in interest rates trading, but Fund ABC also wants to trade equities. Bank XYZ isn't great at equities as it's just not their core business but if it doesn't make markets for Fund ABC in equities they might lose its rates business - so Bank XYZ just has an equities business to provide the service to customers who make money for the bank via other desks. You'd expect, then, that Bank XYZ's equities desk doesn't take massive positions, while its rates desk probably does. I hope that wasn't too poorly worded!
 
I have an interview or a Flow Trader position. It is focused on flow coming in from hedge funds, mutual funds, etc. I don't know the specific desk though. It is first round in person interview. It is not at a bulge bracket firm.

Any tips on how to prepare for such positions?
 
thats pretty general to be honest as thats where most of the sophisticated flow comes from.. any idea of the product and/or asset class? is it a bank or a boutique?
otherwise just generally have some idea of where things are in the market i guess and have some beginner-level views on things..
 
thats pretty general to be honest as thats where most of the sophisticated flow comes from.. any idea of the product and/or asset class? is it a bank or a boutique?
otherwise just generally have some idea of where things are in the market i guess and have some beginner-level views on things..

It's a broker/dealer trading firm.They do a lot o futures, basket and spread trading. They have a big fixed income desk too. I would assume the interview is probably be on the futures of spread trading desk.
 
It's a broker/dealer trading firm.They do a lot o futures, basket and spread trading. They have a big fixed income desk too. I would assume the interview is probably be on the futures of spread trading desk.


If it is a broker/dealer and it is not a bulge bracket you are probably going to enter an apposite position to the one just entered by the customer.

Usually, the dealing desk of a brokerage firm makes most of the moeny from trading against their clients. The majority of customers (around 80%) lose money and those firms earn what a customer loses (plus commissions).

Alternatively, you are going to be a market maker. As simple as that.

hope this helps
 
If it is a broker/dealer and it is not a bulge bracket you are probably going to enter an apposite position to the one just entered by the customer.

Usually, the dealing desk of a brokerage firm makes most of the moeny from trading against their clients. The majority of customers (around 80%) lose money and those firms earn what a customer loses (plus commissions).

Alternatively, you are going to be a market maker. As simple as that.

hope this helps

I think they do executions and trades on behalf of the customers. But then again, you could be right.

How is the pay in such positions? What about exit options?
 
I think they do executions and trades on behalf of the customers. But then again, you could be right.

How is the pay in such positions? What about exit options?


1) if you just execute orders you are going to be an execution trader (good luck for the night shifts) but many firms have got algorithms implementing iceberg orders so they do not really need a human being and thet is why I did not mention this type in the first place.

However, if the firm is not very big it could be the case that they do not have the necessary technology to implement the algo trading and they want an execution trader.

2) I dont know about the pay because it varies from firm to firm.

3) Exit options? you mean what are the possible job opportunities once you leave?
if you mean that I would say a proprietary trading firm but an hedge / mutual fund would be much better. A bank could even hire you but you are probably going to work in the BO or MO (which is not bad at all but it depends on what you are going to do there)
 
1) if you just execute orders you are going to be an execution trader (good luck for the night shifts) but many firms have got algorithms implementing iceberg orders so they do not really need a human being and thet is why I did not mention this type in the first place.

However, if the firm is not very big it could be the case that they do not have the necessary technology to implement the algo trading and they want an execution trader.

2) I dont know about the pay because it varies from firm to firm.

3) Exit options? you mean what are the possible job opportunities once you leave?
if you mean that I would say a proprietary trading firm but an hedge / mutual fund would be much better. A bank could even hire you but you are probably going to work in the BO or MO (which is not bad at all but it depends on what you are going to do there)

they do lots of algorithmic execution. They have a big back office support team for that stuff.

If I was a trader handling flow, you're telling me I would get hired by a bank to work BO or MO? That makes no sense. Either they would hire me as a trader or they wouldn't.
 
they do lots of algorithmic execution. They have a big back office support team for that stuff.

If I was a trader handling flow, you're telling me I would get hired by a bank to work BO or MO? That makes no sense. Either they would hire me as a trader or they wouldn't.


Being a trader for a proprietary trading firm does not have anything to do with being a trader for an investment bank.In the second one, you do a completely different job...you play a totally different game since you are negotiating the price...you are literally making it.

However, let's assume you want to be a prop trader at a bulge bracket:

Have you ever seen prop traders in big banks?
have you ever noticed that the majority of them is at least 35 with than 10 years of experience?
look at their resumes and you will immediately realise they have many MO jobs in their previous positions (risk management, quantitative analysis,etc). there is no way a big bank is going to give you millions to trade if you dont know EXACTLY what you are doing and you get there after years of experience and knowledge.

Real life is different from Uni...you can get a job even if you are a complete idiot as long as your parents gave you enough money to do a master at Harvard or Oxford but landing a prop trader job in a bulge bracket means you have to make money and they do not really care who you are or where you got your degree from. you make money:good.you do not make money:bye bye. end of the story

If you want a job as a prop trader in a bank you'd better off going through a fund first and then go for a bank. An execution trader is just something you can begin with that's why they hire even fresh graduates: it is a mechanical job.

Piece of advice: get this job, learn as mush as you can, get some experience and THEN move somewhere else.
 
let's assume you want to be a prop trader at a bulge bracket

This is probably illegal nowadays in US. After the credit crisis, Big Banks are only allowed to invest minimal funds on prop.
 
Being a trader for a proprietary trading firm does not have anything to do with being a trader for an investment bank.In the second one, you do a completely different job...you play a totally different game since you are negotiating the price...you are literally making it.

However, let's assume you want to be a prop trader at a bulge bracket:

Have you ever seen prop traders in big banks?
have you ever noticed that the majority of them is at least 35 with than 10 years of experience?
look at their resumes and you will immediately realise they have many MO jobs in their previous positions (risk management, quantitative analysis,etc). there is no way a big bank is going to give you millions to trade if you dont know EXACTLY what you are doing and you get there after years of experience and knowledge.

Real life is different from Uni...you can get a job even if you are a complete idiot as long as your parents gave you enough money to do a master at Harvard or Oxford but landing a prop trader job in a bulge bracket means you have to make money and they do not really care who you are or where you got your degree from. you make money:good.you do not make money:bye bye. end of the story

If you want a job as a prop trader in a bank you'd better off going through a fund first and then go for a bank. An execution trader is just something you can begin with that's why they hire even fresh graduates: it is a mechanical job.

Piece of advice: get this job, learn as mush as you can, get some experience and THEN move somewhere else.

There is almost no prop in banks anymore. If I wanted to do prop I would rather do it in a prop shop or a hedge fund. I mean't if I was a flow trader elsewhere, would it be possible to become a flow trader in a bank in the future. Just curious...
 
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