What do sell-side traders do?

I'm pretty fuzzy on what exactly has been enforced on the Volcker rule, and how sell-side traders currently operate.

From what I'm aware, buy side traders in AM act as executionists, taking orders from PMs and make the proper trades in the market. prop Traders/HF traders can act as market makers and take on their own risk given their capital, which is prohibited in most sell-side banks

I believe that sell side traders can act as flow traders, who are asked to play the role of a broker to sell securities on a client's behalf and can earn a fee by matching them accordingly by finding clients that want to buy them. How would this be different from execution trading? And Why wouldn't a buy-side trader in the AM arm of a bank do this instead of a sell-side trader?

What is the difference between a sales-trader and a regular trader in responsibility at a sell-side bank?

 
Best Response

With regard to sales-trader vs trader in the equity market, sales-trader cover specific clients, and if the order is small enought that it shouldn't affect the market (lets say, sub-50,000 shares) the sales-trader will simply route the order to one of the banks algos (VWAP,TWAP, aggresive, moderate, low). The sales-trader is acting on behalf of the client.

The trader gets involved if the trade is significant volume (100,000+ for example) and will either A. manage the trade themselves on behalf of the client, or B. become at-risk by taking the other side of the trade and hopefully unwinding the position before their commission dollars are eaten away by the market moving against the position.

Traders can get an edge here by earning commission and by knowing where client orders stand.

Client A wants to buy 100k of MU @ $17 and Client B gives you a 100k block trade sell order on MU at $17.25, you take the opposite position for client B.

Now Trader is now long 100K MU @ 17.25, BUT you know that you have a buyer at $17. The most you are at risk is 25 cents (17.25 - 17 = .25) This gives you an edge because while the most you can lose is 25 cents as Client A is a willing buyer of your position, there is still upside to the trade (if it goes above 17.25) AND you got your commission of between 1 to 5 cents per share.

Best case scenario, Client A also wanted to buy 100k of MU at $17.25, you can then match their orders off and collect commission from both clients and assume zero risk on MU.

 

in global macro space (Rates, FX) the sell side trader just takes the other side of every client trade as principle, and THEN decides whether they want to hedge/exit the position, or if they want to "take a prop position" by not hedging / holding the risk for some period of time (minutes, hours, days, etc...).

In rates/FX, you RARELY have crossing client orders...less than 5% of the time...so as a BB flow trader, you are essentially a prop trader, who also trades flow for the firm. These are obviously, very competitive spots...as they take large risks and P&L swings.

 

In Cash Equities, yes - it is predominetly trying to cross/execute the trades at the best price, it's an agency model which doesn't require much "skill".

In OTC markets, Derivs, Fixed income etc. where you are holding inventory on your book, it is up to you hedge efficiently and make money on your book. You are not just following orders from clients, you are providing a market and giving a price to a client where you think the product is trading at, you the tightness/widness of the spread is down to liquidity and overall sentiment and is up to the trader to skew the spread into his/her favour whilst not letting the clint bugger of to someone else.

Because you are holding inventory on your book, you should have a view about where the product is headed, both short term and long term and it is up to trade around that view and make money.

 
Mont:

In Cash Equities, yes - it is predominetly trying to cross/execute the trades at the best price, it's an agency model which doesn't require much "skill".

In OTC markets, Derivs, Fixed income etc. where you are holding inventory on your book, it is up to you hedge efficiently and make money on your book. You are not just following orders from clients, you are providing a market and giving a price to a client where you think the product is trading at, you the tightness/widness of the spread is down to liquidity and overall sentiment and is up to the trader to skew the spread into his/her favour whilst not letting the clint bugger of to someone else.

Because you are holding inventory on your book, you should have a view about where the product is headed, both short term and long term and it is up to trade around that view and make money.

In your 2nd example with OTC markets, etc. that's not agency trading. Agency trading has in its definition the fact that the traders don't hold inventory. That's market-making, which some sell-side traders also do.

 

not true. It really just depends on the market being traded, so can't really stereotype. Long/Short funds with longer time horizons will have traders who are really just executing. Fixed income including distressed, commodity, derivative based, convert, and a host of other strategies can vary, with a lot of times the trader controlling the book and risk profile of the portfolio (it's their P&L). On the sellside, it depends a lot, certain areas are purely flow, some have a little bit of prop, and some have a lot of prop

 

In terms of not having time to learn, looks like you need to be able to commit some time outside of hours. I didnt get to trade for until 8 months in, and for those months I did all the operational tasks that needed to be done because like it or not those things need to be done, and its the juniors job to do it. You need to prove that you should be in a trading seat, its not something that will be given to you on a day. You need to a) show you make not mistakes on all the "menial" tasks you are doign now and b) show you are willing to put the effort in to learn enough so that in a couple months when a trading book opens up you can be in the conversation. Getting put on a book is not something that will happen in X months. It will happen by someone leaving/getting fired and then you having shown enough in the past couple months that the heads should consider throwing your name into the ring

 

a lot also depends on OTC versus exchange traded etc. For example on CME you could do block trades for pretty large size which don't have to be reported immediately. I need to check the rules, but the price also can be outside the known market at that time by a certain amount.

 
justin88:

Every trade moves the market...

This. So, even my mother has moved the market.

CNBC sucks "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up
 

so actually out of curiosity, has the SEC ever fined anyone for moving markets or manipulation? I know there are a few famous cases in electricity, nat gas and oil and now people are looking into FX, but I never came across similar ones in equities or SEC regulated stuff although I am pretty sure it happens.

 

Est laudantium fuga repudiandae rerum accusantium fugit corporis. Accusamus alias ea natus veritatis tempora nihil. Officiis quia aliquid iure est ut harum. Eum est sequi sint quo.

Impedit vel quia culpa sit cumque enim et error. Adipisci exercitationem rem velit optio hic fugiat dolore maiores.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 

Sunt eum ab repudiandae soluta dolore vel. Molestias provident perspiciatis aut sunt. Incidunt quod maxime quaerat quis quas distinctio. Molestias dolorem aut aliquid tempore consectetur. Quia tempore velit quaerat non et. Voluptatem molestiae numquam excepturi corporis.

Autem quia qui nemo ad animi et. Velit dolore quae sit dolorem neque. Expedita placeat repudiandae impedit ab.

Minima consequatur nihil magni est inventore provident. Dolore veritatis totam error aut saepe. Enim nesciunt ea ratione nihil alias. Eum quam unde voluptatem vero.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
kanon's picture
kanon
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
DrApeman's picture
DrApeman
98.9
9
GameTheory's picture
GameTheory
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”