A few questions about the job of a trader

Hi, I’m just trying to learn about the typical day of a FO trader in an investment bank (just your average trader, not a prop one). I’ve got pretty confused about some aspects of their work, so would really appreciate it if someone could help me out here, apologies if these are stupid questions!

Vault’s guide to sales and trading says ‘the trader is not concerned whether or not the stock is a good investment. A lot of people have the misperception that trading on Wall Street is about looking into a crystal ball and trying to divine the future of an investment. It’s not – the trader’s role is to provide liquidity and to determine an appropriate price given the interests of the customer and the firm.’

I don’t really follow the logic here. Surely when deciding on the bid/ask prices and how many shares to offer to buy/sell at these prices the trader is essentially making a prediction about what will happen to the future price of the stock. E.g if he thinks a stock is a bad investment (i.e it’s price is about to drop) then wouldn’t he take this into account by offering to sell a large amount of stock but buy only a small amount at the price he has set? If he doesn’t do this and is forced to buy many shares at the current price then if he is proved correct and the price does indeed fall then he’ll probably end up selling the stock back at a lower price thus incurring a loss.

To further confuse me I read on another site that ‘traders provide liquidity and in doing so, take risk onto their books. They must manage this and somehow come up with a profit for the bank. Sure they leave some risk on the table depending on their view of the market, but they are not standalone prop desks.’

Again this would imply that they are concerned about whether a stock is a good investment. I assume that 'depending on their view of the market' means that if they think that the price of a particular stock will go up then they will happily buy it without looking to get rid of it any time soon, instead keeping it in their inventory and hopefully selling it down the line for a profit. What sort of timeline are we looking at here, I mean how long is a trader likely to keep hold of a particularly stock whose price he thinks will go up?

Finally if a market maker does decide to get rid of some stock in his inventory that he thinks may fall, then how exactly does he go about doing this? Does he

a) Ask the sales team to ring up and find some potential buyers
b) Sell it himself to another trader.
c) Do neither of the above, keep hold of the stock and wait for a buyer to ring up. In the mean time hedging his position by buying another stock

If a) then there seems to be a conflict of interest. He is getting the sales team to ring up people and presumably convince them that this stock is a good buy, when in fact they have just been told by the trader that this stock is likely to go down. If this is indeed the case then surely potential buyers will cotton on to these sort of tactics by the sales team and just refuse to listen to their recommendations.

If b) then does he sell to another trader on his floor or does he contact a broker at a different bank? I assume that he gets the same prices as a normal customer gets.

If c) then who does he buy this stock from?

Apologies for the massive post. No need to answer all of the questions, help with any of them would be great. Thanks in advance!

 
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