What makes a good trader on the sell side?
Mainly concerning ficc products.
What kind of skills should one focus on?
What makes the rainmakers so good these days?
How has this changed over time since post 08?
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Diving into the intricacies of what constitutes a proficient sell-side trader, especially in the realm of FICC (Fixed Income, Currencies, and Commodities), it's essential to highlight the evolution of the role and the skills that have become increasingly vital over time, particularly post the 2008 financial crisis. Here's a breakdown based on the WSO Dataset:
Quantitative Analytical Skills: The modern sell-side trader must possess robust quantitative analytical skills. This is a departure from the past when traders could rely heavily on instinct. Today's environment demands a thorough understanding of complex financial models and the ability to interpret and act on quantitative data effectively.
Technological Proficiency: The increasing automation of trading has put a premium on technological skills. Sell-side traders need to be adept at using advanced trading platforms and algorithms. This includes understanding electronic trading tools and being able to offer execution consultancy to clients, helping them choose the right execution mechanism.
Market Structure and Regulation Knowledge: Post-2008, there's been a significant shift towards tighter regulation and a more complex market structure. Successful traders now need a deep understanding of these elements, including compliance issues and how different regulations affect trading strategies and operations.
Risk Management: The ability to manage and mitigate risk has always been crucial, but its importance has been magnified in the post-crisis era. Traders must be able to identify potential risks, understand their implications, and take appropriate actions to protect their positions and their firm's interests.
Client Relationship Management: Despite the move towards automation, the ability to build and maintain strong relationships with clients remains vital. This involves not just executing trades but also providing valuable market insights, keeping clients informed about market movements, and understanding their needs to offer tailored solutions.
Adaptability and Continuous Learning: The financial markets are constantly evolving, with new products, strategies, and regulations emerging regularly. A top trader must be adaptable, willing to learn, and stay ahead of industry trends and changes.
Rainmakers, or those who generate significant revenue for their firms, excel in these areas but also possess an exceptional ability to anticipate market movements, leverage their network to uncover unique opportunities, and consistently deliver value to their clients, thereby building trust and loyalty.
Since the 2008 financial crisis, the emphasis has shifted from purely relationship-based trading to a more analytical and technology-driven approach. This transition has necessitated a broader skill set, where understanding the intricacies of market structure, regulatory compliance, and technological tools are just as important as traditional trading skills and client relationships.
Sources: MUST READ! What makes a good trader, fund manager, hedge fund manager, salestrader, and buy-side trader, https://www.wallstreetoasis.com/forum/trading/converts-trading?customgpt=1, FICC sales trading desk
Bump
FICC is still incredibly diverse, encompassing extremely different desks like spot fx (even etrading), commodities, rates vol, and exotic options.
Your mileage will vary significantly across these desks. In some desks, buyside and sell side trading will be broadly similar whereas in others they’ll be nothing alike. At some of these desks, the fully fledged individual traders will all but act like mini hedge funds even, especially if the product structure is more complex, opaque, and illiquid.
any color on what credit trading is like?
Don’t know the space very well, but did get the impression from a friend in the space that most stuff in credit tends to be quite illiquid, hence more room to take on sizeable risk. In other words, very similar and transferable to buyside credit. Not sure what specific skillsets are required though, but I would imagine credit is significantly less quantitative than other products
thank you! extremely helpful response. i'm going to go for a bb credit trading internship and hoping to get converted, do you have any tips for me?
I appreciate your reply very much!
Tbh I don’t have a good grasp on what the day to day of credit trading is like, but I will say that ultimately don’t sweat it too much - the key thing is to learn and absorb as much as you can really, s&t desks tend to be incredibly different from what college students think it’s like, and your only job is to learn as much as you can while finding out whether this is really the job for you. The rest comes naturally, as long as you put in the requisite effort and can indeed learn things at the necessary pace
Would the working on the rates flow options and exotics desk at a bank be broadly similar to the buyside?
Not as I understand it; my understanding is that the main job of bank exotic desks is to find a way to profitably warehouse and deal with all the random risk they get dumped with. I’m not even sure if desks focused purely on exotics exist in the buyside, but I doubt this skillset translates very directly anyway. Could be wrong though
In general, it depends on how your desk operates in terms of market making vs price taking. If your job is being involved in the brokers 24/7 and pricing up client RFQs, then it won't have much similarity to the buyside where you: i) don't see any flow, and ii) are price taking. If your desk does lots of risk taking (as some FICC businesses do), then those skills are directly relevant for the buyside.
In terms of flow vs exotics, I agree with what the above poster says. Exotics will teach you risk management of obscure structures, but I don't really think many buyside firms are trading them because they are very illiquid and not necessarily lots of edge compared with more liquid instruments. Flow desk will give you greater familiarity with instruments that buyside accounts are trading, but you may spend more time pricing trades compared to exotics which I have seen to be slightly more cerebral. That is, unless your business doesn't trade with clients...
Anyways, both would be good opportunities as usually the flow and exotics teams fall under the same umbrella and sit next to each other. People can likely move around between them over time and gain experience in both. If you trade exotics, you will definitely need to know about vanilla products as well - the converse is not true.
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