Q&A: 25 years Sales / Trading Experience

The biggest pro is there is a period where you can learn as part of a team working on mandates, structures, proposals before you are allowed to own your clients. That is also a con because it takes a while to build your own client base.

Moving from sales to trading is not common. The heads of trading don't believe the sales guys have the depth of knowledge. Moving from trading to sales much more so because you have the product knowledge and can impress clients.

In EQ derivs flow positions probably 75%. The biggest need is probably in structured products. The private banks and IAMs are churning out notes for their clients that require optionality, yield enhancement and leverage. They source this from the bank EQ deriv desks. This flow is the driver.

Networking is very important across the bank and across the industry. Try joining associations and groups in your field. Attend webinars and listen to others who are knowledgeable and confident.

One area where experience of physical trading is needed is commodity finance. Corporate relationship managers who are looking after clients who need inventory finance, receivables finance, borrowing base etc. Financing now covers complex products with price risk hedging, FX hedges etc but real experience of physicals risk and the value chain is vital.

Make sure you do not go outside the guidelines / rules for product suitability, risk disclaimers etc. The one thing that can sink your career at an early stage is complaints from clients that they lost money and they can point to lack of compliance on your part.

To prepare well get friendly with your compliance team!

The hardest and probably most important this to learn is when to use or to recommend to a client which product to use for a given outlook. You may know the theory, but how is is going to play out in the market. That comes with experience.

Variable comp used to be a bigger component of overall comp. The banks were criticised by regulators and the public for big bonus payouts. They still needed to retain their best people so they upped the base and dropped the bonus. That means in bad times they have to shed the workforce faster and then rehire in good times.

1) a) Probably equities. The scope is bigger. b) Equity derivatives / structured products c) S&T. The markets are volatile now so there is more scope. The deals in IB are not happening.

2) Structured products for HNW & UHNW investors. Probably going to be demand after the recent market volatility, for diversification, yield and gearing.

Hi YoungBanker, Automation of price making and dissemination is well advanced. For example clients can get automated quotes on exotic structures very easily, and sales can contact, advise and book trades without contacting the trader unless further negotiation is required. However the overall book needs to be managed and hedged, so yes there are less traders involved but there is much higher flow volume which needs to be managed. Pure prop trading is gone but sales and trading will not be a short term thing. Banks need client flow more than ever. New products need to be developed, sold and managed, to help clients hedge risk, enhance yield, gain leverage etc. If you do think traders are being phased out then one area to head for if you have good math skills is the XVA desk. Part of the overall risk management of the bank, usually reporting through Treasury to the CRO. Banks certainly need more risk managers! There are many AM and HF strategies out there. Not all are merger arbitrage, equity long short, quant or event driven. Traders are very much required at macro (making a great comeback), relative value (FI & EQ), FI & EQ arbitrage and credit. Hope that helps

Hi Econic, 1) Asset Management. You can look at Multi Asset and Alternative funds. These AMs need derivative expertise especially Rates because that is where the AUM is and that is where you need innovation to outperform. Have a look at the Wellington Management website. Good view on the world of Multi Asset and Alternatives. Also rates derivative expertise is needed on XVA desks. Banks need risk managers! 2) US banks are just bigger, better managed, have a bigger client base, are better capitalised and are better supported by the US regulators. So yes. I hope that helps.

There's going to be no shortage of issuance and the Fed are supporting the market. Anything with a bit of yield will be attractive so I think the muni market future is good for the next few years. I don't know enough about muni market structure so I can't really comment on automation, compensation etc. Like all sectors you need good traders to manage portfolios of risk.

The current situation is challenging for CLOs. Leveraged loans were the bull market through 2019. Now the universe is highly leveraged, covenant lite, and has features like EBITDA add backs. With the pandemic corporate defaults have risen and rating agencies are actively downgrading. Credit quality of loans in CLOs is falling. Then there is the oil, transport and retail sectors where bankruptcies are compounding the stress. Fitch recently raised its forecast for leveraged loan cumulative default to exceed $200 billion through 2021, which is 15% of the $1.4 trillion universe. Bond markets are in favour, because of the Fed and because new issues are being priced well for investors. So I think the securitized market is going to be challenging for the next several months.

Hi CMTitan 1. The process is only learned on the job. You need to gain confidence in the systems. You need to get the trust of the sales team. Make sure you know the people you are interacting with very very well. Invest in non work "face-time". If they know who you are they will forgive screw ups (as long as not too many). There is nothing more frustrating than miscommunication between sales and execution traders. Take over as many orders as possible. Take control of the process. Make your mistakes early on. You will be expected to be super slick and confident in a few weeks so you better get used to it. Another thing you can do is get to know the IT desk support guys. They can save your life when systems fail. If they know you they will help you, if they don't they will prioritise their friends. 2. There's tons of stuff on the internet. Or ask to take a course. You should subscribe to a source like Risk.net or even just read all their free articles. Never stop reading about products. Then when you are confident talk to the sales and traders about when and why they would use them. What market environment? What outcome is the client looking for? What level of risk? How did you structure that? What about FX risk? What about redemption? Never stop asking questions. That's the only way to get your confidence early on. You will get the stupid questions out of the way early and then you won't ask them again. If you are still asking stupid questions in a couple of months people will be less forgiving. Then talk to clients if you get a chance in a non pressure environment like a social event or conference. Often times clients love to talk about themselves and how great they are so you can just ask a few leading questions to find out what products they use to make all their great alpha! 3. Observe what happens after an event. Log it, even write it down in a notebook. For example China media encouraged investors to support the market - look what happened! No fundamental reason, just sentiment. Watch flows across the desk. Which clients are trading when... When does the book need to hedge? Where are the stress points? Look for technical signals - index levels, FX rates. 4. The hardest part. Build a list of "go to" trades for a defined list of scenarios. For example a client wants leveraged participation over a short term and is happy to take some downside. What trade do you recommend? A lot of sales is about knowing what the latest trend is - so you better make friends across the street so you can canvas the opposition. A lot to do. But you have a great career if you can do it. Good luck!