Cash traders & sales-traders - what's the point? 
(Monkey, 65 
Points) on 5/6/08 at 6:03pm
Why would any client who wants to buy/sell a liquid asset (say a stock for example) by ringing up a sales-trader, who punches the numbers into their screen and clicks enter (far too frequently making an error in this process), and then having a trader work the deal in blocks, paying 10-20bps commission, when you can do the entire thing yourself using DMA - http://en.wikipedia.org/wiki/Direct_Market_Access - many brokers now provide clients with a DMA website where they can execute their orders themselves, pay 3-5bps, less prone to errors and often have the execution over and done with much faster?
Cash trading seems to be an industry in rapid decline. The only time you'd need them if you're playing with an extremely illiquid stock, or want an order so large it over-rides all the available buy/sells within the appropriate price range. For most clients who just want to buy thousands (at most, a million or three) at a time of a liquid asset, this is not the case.
And why do you need separate salespeople and sales-traders? Salespeople sit there all day, you don't need a doubled up team to execute the orders the brokers are pushing?
Badam why dont you do us all
by trade4sizeBadam why dont you do us all a favor and go drive off a cliff because you do not contribute anything of meaning to this forum. All you do is troll. First beginning with your ridiculous DB no respect thread, then the prestige thread, then your supposed 400k pay thread. Now this, now you insult cash trading.
I will answer this even though its only going to make you use some stupid comeback about how DB is god at FI and how equities are dying. The last time i checked banks still having growth in cash trading meanwhile all those quant/exotic/structured products that lost all that money for those banks.
First of all your an idiot to assume that there is always liquidity, if you dont want to move a stock or tip your hand use a sales-trader. Try moving 3mm shares of a "liquid" stock and see what you do to the price. And you better buy/sell it all at once because if you tip your hat the street is going to run it up or crush it making your life hell if you have to do more.
The bottom line is, the buy side uses the sell side for information and execution. This information is a service, and with this service comes a charge. When you are getting information expect to pay for it, there is no free lunch.
While DMA is growing the biggest 2 reasons for using a sales trader are information, and outsourced trading. Quite frankly the buy side does not want to sit there trading a product when their time can be better put to use coming up with trade ideas. So they outsource their trading to a sales-trader or block trader to work the order.
What it all boils down to is information, time, and expertise. Clients use the sell side for information which keeps them plugged in. They act as eyes and ears for their client. Clients dont want to spend time working orders and have faith in an experienced trader that literally sits and works orders all day every day. That leads into expertise, if your edge comes from idea generation and not execution then the opportunity cost of you spend using DMA is research.
Other instances occur when the buy side is overwhelmed and they need to outsource the trading. I dont even know why i bothered to post this, we have already established your an asshole. Please badam, stay in germany.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
Thanks
by badamBadam why dont you do us all a favor and go drive off a cliff because you do not contribute anything of meaning to this forum. All you do is troll. First beginning with your ridiculous DB no respect thread, then the prestige thread, then your supposed 400k pay thread. Now this, now you insult cash trading.
I will answer this even though its only going to make you use some stupid comeback about how DB is god at FI and how equities are dying. The last time i checked banks still having growth in cash trading meanwhile all those quant/exotic/structured products that lost all that money for those banks.
First of all your an idiot to assume that there is always liquidity, if you dont want to move a stock or tip your hand use a sales-trader. Try moving 3mm shares of a "liquid" stock and see what you do to the price. And you better buy/sell it all at once because if you tip your hat the street is going to run it up or crush it making your life hell if you have to do more.
The bottom line is, the buy side uses the sell side for information and execution. This information is a service, and with this service comes a charge. When you are getting information expect to pay for it, there is no free lunch.
While DMA is growing the biggest 2 reasons for using a sales trader are information, and outsourced trading. Quite frankly the buy side does not want to sit there trading a product when their time can be better put to use coming up with trade ideas. So they outsource their trading to a sales-trader or block trader to work the order.
What it all boils down to is information, time, and expertise. Clients use the sell side for information which keeps them plugged in. They act as eyes and ears for their client. Clients dont want to spend time working orders and have faith in an experienced trader that literally sits and works orders all day every day. That leads into expertise, if your edge comes from idea generation and not execution then the opportunity cost of you spend using DMA is research.
Other instances occur when the buy side is overwhelmed and they need to outsource the trading. I dont even know why i bothered to post this, we have already established your an asshole. Please badam, stay in germany.
Thanks trader4size for a very clear response. Believe me I was not trolling here at all - basically in my previous job I had zero exposure to equities, and in this integrated Global Markets division for the first time I've had to do some work with a different team, and from the offset the equities business seems extremely inefficient. There seems to be enormous crossover with research and sector-specialist salespeople, the latter also modelling all day but not having their stuff published, crossover between salespeople and sales-traders - good sales-traders seem to give as in-depth commentary and advice as salespeople, whilst cash traders seem to have for the most a pretty basic job placing blocks. And it surely can't be that well-paid - with enormous loss ratios this year cash trading can be a cost-centre, surely the huge bulk of a trader's earnings would be through their side prop book?
Anyhow, apologies for whatever sounds condescending / naive / insulting, I'm new to all things equities and the research / sales / sales-trader / trader with multiple cross-overs (country-specialist, sector-specialist and mid/largecap-specialist) seems incredibly inefficient vs other asset classes.
I can comment on the
by trade4sizeI can comment on the overlap. Typically a bank will give a dedicated sales guy for clients with assets over a given size, or do yearly commissions on a given level. Remember in equity the bulk of the transactions are agency based. Proprietary trading in equityland is a much smaller component than it is in other products.
Sales-traders are a hybrid that do both sales & trading. Typically they have all the knowledge of a regular sales guy but they tend to deal with smaller clients. Also cash equities are growing across the block because they again are mostly agency opposed to principal. As volume goes up so will profits.
Cash equities are sort of the slow and steady earners on the trading spectrum. Their salary volatility is going to be lower than a product that may run in a more cyclical nature such as commodities. Cash equities are similar to spot FX trading in the compensation picture.
equities also give a good exit opportunity, daytrading. Plenty of cash guys leave and just become independent traders.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
A dozen equities people at a bank covering the same client
by badamSales-traders are a hybrid that do both sales & trading. Typically they have all the knowledge of a regular sales guy but they tend to deal with smaller clients.
Hmm, definitely not here - all the major clients have 1 sales-trader (and 1 back-up) they call for execution, 1 large-cap generalist salesman, 1 mid-cap generalist salesman, and a bunch of sector-specialist and country-specialist salespeople spamming a client to death from the same firm. On top of that, the research analysts seem to talk to the clients a lot, and surely they'll know a lot more about the stocks they cover than any salesperson. It all seems crazily inefficient.
DB is not known for equity
by trade4sizeDB is not known for equity trading so keep that in mind. That does seem like a bit of overkill in terms of coverage. Lets analyze the roles
Institutional Salesman- Master of relationships who know has what, who wants what, and what levels they want it.
Sales-Trader - Hybrid of sales and trading, liason between block trader and the client. Tends to work the smaller orders, trades tend to be agency.
Block Traders - Obviously they work the order
Sector sales - they know whats actually going on in the sector in day to day business. Much more trading related opposed to actualy analysis.
Country sales - Sounds like your on a bit of an international desk. Dont have any idea as to the norm for international desk break downs.
Research analyst - knows whats going on in the company but knows jack shit about how the issue is trading in the market day to day. Much more macro and very stock specific than the coverage that a salesman provides.
As usual it varies firm to firm but that in general should cover equities. I dont understand why people think equities are so beat. Thats for another post, i will debate it with you as you seem to take the contrary of everything.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
I just realized you said the
by trade4sizeI just realized you said the traders charge 10-20 bp for commission. It didnt click at first because im using to think in flat rate per share but 10-20 bp is ripoff levels. No wonder your firm struggles in equities. They better have information from the gods and the best traders to work the order on the street by far to make that rate reasonable.
10 basis points on a $100 stock is .10
20 basis points on a $100 stock is .20
10k shares per block X .10 = $1000 commission per block
From my experience a charge per share is more common than basis points. Typically I have seen things range from .005 to .03 per share seems to be the norm. While using basis points is probably more efficient a flat fee per share tends to be more common.
Yeah dude thats like ripoff level. No wonder my firm is growing so aggressively. They have great execution and great prices if you have
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
Yup 10-20bps
by badamFrom my experience a charge per share is more common than basis points. Typically I have seen things range from .005 to .03 per share seems to be the norm. While using basis points is probably more efficient a flat fee per share tends to be more common.
Yeah dude thats like ripoff level. No wonder my firm is growing so aggressively. They have great execution and great prices if you have
Yeah here it's 10bps for top clients and 20bps for smaller ones. Didn't think it was too outrageous, eg $50 fee for $50,000 of stock.
Thats pricey, I trade index
by trade4sizeThats pricey, I trade index futures for my personal account my one way commission is $2.50 per lot which has a notional value of around $65,000 per contract, and thats still pretty steep but only because I dont do that much volume.
I would love to see how that 10-20bps is bundled together.
Clearing fee, exchange fee, ecn fee, and commission for how that is broken down.
That seems just like a very expensive agreement and the traders/salesman had better be giving rediculous value added to make that rate worth paying.
Cash equity trading began to lose its appeal with the birth of electronic trading, DMA, and with the change over of decimalization. As a result of the tighter spreads and electronic capabilities this has greatly increased the volume in equity markets.
While you suggest that cash trading may be a dying breed I must argue that its not dying but rather its evolving. The value of voice brokerage decreases as a market matures and becomes more liquid, however in a more liquid market this creates more value for good timely information, ability to work an order getting the best prices, electronic trading capabilities, algo/program trading, anonymity, pre/post and realtime up to the minute reporting on Positions.
A lot of the luxuries afforded in a mature market are not a possibility in a developing market. So its not to say that the market is dying but rather that different skills are in demand. I agree traditional voice brokerage without any other value added is a dying business model. The firms that do not adapt will suffer to other firms that embrace the new techology and changing needs to the market participants.
I post this not just for you badam but for everyone else that seems to give equities a bad name.
Equities often are bashed on this forum out of ignorance.
-Spreads are too small which result in crunched margins. However this is offset by the increase in volume
-algo trading- People often claim that this is going to be the end of equity traders as they will be replaced with a black box. Remember that people use the sell side for information not just for execution. I believe a good human trader can beat a computer.
Electronic Trading/dma - people argue that the buy side will just work the order themselves. This actually gives the buyside the ability to focus on idea generation opposed to the physical working of a trade. The whole concept of working a order getting the best price has basically been outsourced to the sell side while the ability to generate unique alpha generation ideas get a heavier weight. Finally remember that sometimes the buyside gets jammed and the PM wants to make a lot of adjustments, if the buyside trader needs to get the orders done and he cant hes going to shop these orders to the sell side to work themselves.
Hope this helps.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
Nice
by badamNice one trade4size.
I said cash equity trading is a dying business as I heard here revenues and bottom-line has been in decline around 15% each year recently - the tightening of margins (with more people using low-bps DMA etc) is not fully counterbalanced by growth in vols.
Also, your definition of sales-trading may be wrong. Definitely here its NOT the case that sales-traders are a hybrid of sales and trading who tend to work orders for smaller clients. Here sales-traders have absolutely nothing to do with working orders, they don't even have access to do that, all they do is (a) what salespeople do ie forwarding out Bloombergs and chatting to clients on stock newsflow and (b) the execution ie typing "BUY 200,000 AAPL.US LIMIT 185.00 ENTER" into the computer. The trader will then work the order.
Also, don't get so upset when people bash your job. I say this somewhat hypocritically from being upset when people bash my bank, but fact of life is every single area of banking is riddled with (predominantly negative) stereotypes - in cash equities this isn't helped by the multitude of loud, brash, gluttonous types at the bars! M&Aers work 120 hours a week for $60k (ie less than McDonalds hourly wages), corporate brokers lick S&P ass all day, quants are antisocial geeks with no people skills, Ops types are constantly frustrated about not being able to get into FO, the list goes on!
cash equity has is tough in
by ratulcash equity has is tough in the US because transaction sizes are lower and attaining best price can be done reasonably well with an algo (or, at least that the cost of using an algo in beating VWAP is offset by the 1-3bps charge) in fact, many clients pay a premium for algo trading.
I think high touch trading still has a use, but certainly it will be less in 10 years time.
Yeah your sales-traders are
by trade4sizeYeah your sales-traders are different there. How can they even have the word "trader" in their name if they dont work orders. Not even agency trading? All the sales-traders I know, and i know people are several different firms and they all work orders.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.