Needs Help! About Equity Trading
Hi guys, I have a question about equity trading. In an investment bank, as long as I know, there are mainly two divisions in IB which are IBD and S&T. I understand that IBD contributes to value chain of IB by ECM and DCM, and FICC trades various financial products across institutions. However, it's somewhat hard to understand how Equity Trading adds value to a general revenue structure of IB.
Could you help me understand an exact role of Equity Trading in IB? The division only buys a stock at cheaper price and sells it at higher price? Or this Equity Trading has another role like helping other divisions(such as ECM or DCM) work more efficiently?
If you help me understand about equity trading, I will appreciate it!
Since you referred to stocks, i presume you are wondering about cash equities.
the investment bank provides market making service (i.e. provides liquidity). The IB is a willing buyer/seller of presumably any publicly traded security. They dont do this for free. let's say the value of stock X is $1.00, but the bank will quote you 99 cents for you to sell it to them, or $1.01 to buy it from them. the difference there is the bid/ask spread, which is where most of the revenue comes from.
Think of the trading arm in equity as the "cash register". Obviously funds don't need to be paying 3-5 cents per share comission through the bank, there are much lower cost alternatives. That being said, funds do it as their way to pay for the equity research that the ER team provides. If Morgan Stanley produces an insightful research piece on stock X, and highlights reasons in the research as to why its going to $1.15, an analyst from the buyside fund might call up the sales person at MS, get in touch with the researcher, and get more indepth information on their investment thesis. As the buyside's way of saying "thank you" for that work, they will do the trade through MS.
**Equity trading is in charge of stabilizing IPO's after they go public (maintaining liquidity basically via market making on the new stock). Also, if a fund wants to sell a huge block of securities, like 5 million shares of a company (way more than a usual trade) they can work with the capital markets team/equity trading team to price that block (obviously at a few percentage points discount). So if our fund wants to sell 5 million shares of stock X, they might price the block at 95 cents a share, instead of the $1.00 in value because the selling pressure would move the market. Lastly, the equity trading team deals with block trades all the time, so they sometimes can get more favorable pricing for taking on those big positions too.
TLDR; equity trading generates revenue from bid/ask spread, commission, providing extra liquidity for block trades and monetizing equity research's well...research.
Hi, I do appreciate your comment. It was really helpful! It is good to know that equity trading helps stabilize IPO, not limited to generating revenue using bid/ask spread.
Could you answer one more question? I think you know a lot about the industry! I'd like to ask about an equity derivatives trader. What is a general career path to become an equity derivatives trader? Since I am not a math or financial engineering student, I think I could start as a cash equity trader. However, after 2 to 3 years of experience in cash equities, can I move my career to equity derivatives trading? Is it normal to work as an equity derivatives trader after a few years of experience in cash equities? I am curious about what would be exit options for a cash equity trader.
Thank you so much!
Exit ops of cash equity trading don't really exist, unless you lateral to another bank and do that there. If you want to do equity derivatives, apply directly for that position, equity derivatives and cash equities have very little if anything in common, risks are different, and liquidity is different. Writing this on the fly so I apologize on the quality of response.
The equity space is very broad. If you want to do derivatives, start reading options books (I recommend taleb) and start networking with people who have the careers you're interested in.
equity traders (Originally Posted: 01/02/2008)
Anybody have a solid stock pick they would like to share? I want to use it in an interview.
wow, that's brazen.
You would benefit greatly by actually choosing a stock that you are interested in and then investing in the company.
put up a newpaper with stock quotes. Throw darts at it, what ever it lands on buy that. probably a decent investment strategy.
Build a bear workshop Has taken a strong hit recently, Solid fundamentals In place to survive the decline of the non video game toy industry because of its unique and fun product. Easily worth 20$
Senior Accountant getting into equity trading (Originally Posted: 02/06/2013)
Hi I am a CPA with 6 years of Accounting experience. I have no experience in IB / Trading or sales. I have heard that finance professionals at wall street earn way more than typical 9-5 Accountants. I am considering a career change to become a trader at wall street. Is it a wise move in terms of compensation, growth and opportunities. Any feedback will be greatly appreciated
In before the shitshow
don't feed the troll
Go do some research and then come back with targeted questions. People don't like "yo broz I heard in ib u make it rain; tell me how to get dat job," which is effectively how you're coming off. That or a pretty solid troll.
obvious troll is obvious
Sam,
If you want to do finance, get an MBA. I met a global head of M&A at a bulge bracket bank who was a CPA. Just make sure it's what you want, and then do it.
I dont want to go back to school for MBA, too late for me.I was hoping for some alternative route to break into Finance.I guess I will go for this trading position and start from scratch and develop my skills and earn more than a bookkeeper / Accountant job that was paying me $25/hr. Thanks for the feedback UFOinsider
You have a 5% chance. That might be generous.
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