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?
Sell-side traders can take risks for their bank by holding onto securities/client orders and selling it not automatically. This is in the grey area of Volcker rule where banks still risk capital but aren't directly betting.
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.
Yeah I mean in the fixed income space a lot your time is managing an inventory because it's a dealer market.
sell side trader (Originally Posted: 09/04/2013)
if the sell side trader are mainly agent trading, so it means that they simply follow the order of their clients, right? Then, isn't it a quite easy job that doesn't require a lot of analysis? Please inform.
No.
I'm interested in this aswell. Would be great if somebody could tell in simple terms.
Define analysis. Will you have to know how the market works (i.e. market structure, etc.)? Yes. Will you need to do quantitative/fundamental analysis to figure out what to buy/sell? No. There are also many ways to execute client trades nowadays and figuring out how to best do that can make or break an agency trader.
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.
What do sell-side "traders" do. (Originally Posted: 09/06/2007)
So I was wondering what exactly do sell-side "traders" do. I am a buy-side trader and the industry is pretty diverse, but I don't know what sell-side guys do.
if you are a buy side trader, surely you must face a dealer at some point??
they make markets as their bread and butter... its a different mindset than buy side
Not true. For the most part, buyside traders merely execute. On the sell-side, most traders do a mix of prop trading and market-making. On my desk (commodities) most traders do at least 50% prop work.
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
No way OP is a trader
Sell side trading (Originally Posted: 12/30/2012)
staying awake
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
Sell-side traders! Have you ever got an order which moved the market with a substantial amount? (Originally Posted: 09/07/2013)
I was wondering if any sell-side traders (BB) from this board ever received an order which execution's moved the market in a substantial amount? Whether it was for FX, commodities, etc..
Is this a serious question?
Absolutely serious.
http://en.wikipedia.org/wiki/Oil_futures_drunk-trading_incident
I cant believe this has a Wiki page.
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.
Every trade moves the market...
This. So, even my mother has moved the market.
Yes
I like how he listed FX as a suggestion. Funny stuff.
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.
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