The world of selling and trading securities has gotten more discriminating recently. Since the stock and bond markets turned south in 2007, many traders and sales officials have had to work harder. The credit market freeze has made it nearly impossible to trade some securities, as big banks and other investors wait for the government to kickstart the market.
In other places, business is humming, with volumes still at healthy levels in stock trading and parts of the bond market like Treasury and government agency bonds. Trading discredited structured products like subprime mortgages or other esoteric bonds has gotten tougher, and many large banks and hedge funds have shed personnel in these areas.
For those of you who are just getting to know sales and trading, in many ways it represents the core of Wall Street. Traders and salespeople gauge supply and demand each day, following every dip and turn in the market. Some help investors find new ways to make money, while also finding buyers for the securities that the firm is selling. Others work with colleagues, advising companies in developing bonds or stock deals that help them raise money quickly and cheaply. Both jobs require being fast with numbers and the ability to provide service to demanding clients.
Traders sit in the middle of it all, handling millions of dollars worth of orders for stocks, bonds, commodities and cash. Their goal is managing the firm’s inventory of securities so that customers keep paying commissions and their firms keep buying low and selling high.
WHERE THE ACTION IS
Credit blowups have distracted many of the largest players in sales and trading, but there are many firms looking to take advantage of these missteps.
High volatility in the markets has placed a premium on traders who manage risk well and salespeople who know their clients and won’t betray their trust. More than ever, experience is a plus, as clients want a guide who has navigated the recent market turbulence.
Regional brokerage firms and focused sales-and-trading boutiques are picking up many expats from big banks. Regionals Robert W. Baird & Co. Inc. and Stifel Financial have ramped up their trading desks, while BTIG LLC, a stock trading firm, has added bond trading as Cantor Fitzgerald is expanding its junk bond and loan sales desks.
The easy hierarchy of years past is no more. In the past, traders could move from a boutique to the big leagues of a giant investment bank like Merrill Lynch & Co. Inc. or Morgan Stanley. The big banks from 2002 to 2007 took on more leverage, or borrowed money, to juice up their trading bets. It worked for awhile, but ended disastrously, forcing traders to cut back on the riskiness of their bets.
In months to come, Treasury trading desks will still see a lot of action as the U.S. budget deficit continues to grow. And stock trading desks should maintain a sense of stability, assuming the market doesn’t fall much further. Sales and trading executives with background in battered structured credit will find opportunities with distressed credit and real estate recovery funds.
CAREER PATHS
Because sales and trading is core to most Wall Street firms, they’re a convenient spot from which to see a lot of the firm's business, from banking to trading to serving institutional investors. Working on sales and trading is a great entrée to an investment firm. Sales and trading professionals often go on to become research analysts or creators of new financial products. Of course, if the thrill of betting the firm’s money is in your blood, staying on the trading desk can be lucrative and rewarding, especially if you can learn from your mistakes.
Many of Wall Street’s CEO’s including Morgan Stanley’s John Mack, Goldman Sachs Group Inc.’s Lloyd Blankfein and Citigroup Inc.’s Vikram Pandit came from a sales and trading background. Those who succeed keep clients happy by putting them into the right investments. Being able to sell mediocre investments is a short-term asset for a sales career, but might not lay a foundation for long-term success. On the trading side, avoiding excessive risks is paramount.
Sales and trading is a sink or swim business. A trading desk has only so many spots. For go-getters thinking about testing the trading world, a typical undergraduate/graduate degree profile includes:
- Finance/Accounting
- Macroeconomics
- Mathematics/Engineering
- Computer programming
- Statistics
- Social sciences-behavioral psychology
Some typical career paths are:
Summer associate to research sales to sales manager to sales executive
Financial internship to MBA or CFA to position trader to buy-side trader
Investment strategy analyst to sales trader to proprietary trader
Regarding achieving an MBA, sales and trading is an all consuming job, but an MBA can be used as a foot in the door or to get a kickstart on some desks. Once at the job, most in this sector of Wall Street are chained to their clients, taking them golfing or to restaurants to get to know what makes them tick as investors and people.
Trading desks often attract ultracompetive Type-A multi-taskers who know how to prioritize. The rewards are potentially significant, but you're only as good as your last trade or deal. In the next few years, the rewards may be tempered by a general toning down of risk. Instead of swinging for the fences with huge bets, today’s pros are adding other expertise such as electronic trading, or finding new arbitrage opportunities left by firms exiting the business. Getting into the business during lean years can also provide a grounding that will lead to close sales relationships and long-term success.
GETTING THE JOB
One big question to consider is whether the firm you’re looking to join embraces teamwork or individuality. Some larger firms, such as Goldman Sachs have long championed the primacy of teamwork and accountability, though at other firms, many smaller, individuals are encouraged to take as much business as they can, no matter who it offends or what the overall harmony of the firm might be.
Adaptability is also a plus. Knowing one product -- say subprime mortgages -- doesn’t help you when trading in that product freezes up. Many product specialists are going back to basics, as are traders. The days of free investment lunches are over, and its up to you to find where the best deals are.
Overall, the sales and trading environment is rapidly changing, but opportunities are still available.