Fixed Income Sales and Trading 101
Fixed Income () - What Is It?
Fixed income is a type of sales and trading umbrella.that falls under the
Traditionally, fixed income trading meant trading investments that had a fixed income. This means that the borrower paid a fixed amount of money on a fixed schedule.
Over time, fixed income branched off to include a bunch of different products that aren't quite as straightforward as the traditional products (bonds and loans, notably). Fixed income involves the trading of these more traditional products, as well as newer products.
Fixed Income Sales vs Fixed Income Trading
The difference between FI sales and FI trading is quite simple and uniform across S&T. What separates the different types of desks is moreso the type of trading that they do. To quote the WSO guide on S&T, here's the difference between sales and trading summarized:
- Sales: pitch the firm's ideas to clients to sell securities, and build relationships with clients.
- Trading: trading securities, typically in two ways (there are others means of trading, see "Different Kinds of Trading" for more on that), trading for the client or trading with the firm's capital (called agency trading and, respectively).
Fixed Income Hours and Compensation
Fixed income hours and compensation are roughly on par with S&T, so if you know those general figures, this section should look familiar.
During the week, FI S&T workers put in around 50-60 hours. There's typically no weekend work, which is always a huge positive. Generally speaking, the lifestyle in FI and S&T as a whole is very doable.
Compensation in FI, in both sales and trading, averages out around $120k out of undergrad. Salary grows significantly as you climb the ladder, reaching $700k-1m at the managing director level. By the time you're a VP in S&T, you make more from your bonus than your base salary. As always in S&T, performance plays a massive role in determining your all-in compensation, especially at the higher levels.
What Makes a Great Fixed Income Trader?
Prior to 2008, the best traders were the hardest swinging, the ones who took on the most risk. That trader is a dying breed, as banks are cutting back on risk and regulations are limiting the number of desks. @TheKing"
conducted an interview with a fixed income trader at a major bank, who gave four traits that make great traders post-2008.
- Be a student of history: The best traders today have a keen understanding of market patterns, a result of being a student of the market's history. It's amazing how few traders keep a data history, despite its incredible value.
For college students, the best way to do this is to read, read, and read some more. Any resource you get your hands on that sheds light on the history of the market will be tremendously helpful in your endeavors as a trader. Utilize your school resources to build a history of data, as such information can be incredibly empowering; something like historical oil prices, SPX prices, treasury bond yields, are all very much available, and are great ways to analyze trends in each asset class and relative value between them.
- Be patient - look for big margins of safety: Seth Klarman and Ben Graham both wrote about the margin of safety in analyzing value stocks, but the philosophy is connected to trading as well.
Sometimes a trade you put on today looks great today, even better tomorrow, and magical 2 weeks from now. In the meantime, you will get stopped out. With risk-taking much more regulated, the best traders are going to be ones who do the most with the limited available. Be patient with a trade, and never chase it.
- Be disciplined: Good traders define their entry points, stopping points, etc. Great traders adhere to them. After hours and hours of research on a trade, it's easy to fall in love with an idea. When that idea goes haywire, it's hard to let go, and that's why only the best traders have the discipline to get out.
- Be humble and confident: Confidence is a driver of success in trading, but arrogance is equally a driver of failure. Any one trader who thinks they can take down the whole market is fooling themselves and setting themselves up for disaster (see: London Whale). Learn humility, learn when to wait, and test your ideas religiously. When you've done that and your idea stands, then you have something, and it's time to be confident - don't be afraid to dedicate risk to it accordingly.
Fixed Income Interview
FI interviews can be a little tricky depending on how technical they get. For entry level roles, banks shouldn't get too technical beyond the surface-level. Here are example questions to understand going in (@MonkeyBusiness"):
- What is duration? How is it calculated?
- Term structures? Yield curves, their shapes, and how do you make money on the various ones?
- What's the present yield curve look like here (Canada) and there (USA)?
- Tell me some of the different bonds you know about... what about their prices with respect to each other? (Plain vanilla/convertible/callable.)
- If interest rates go up/down... what would you do with a bond that is presently variable in coupon rate that has a convert option to a fixed coupon bond?
- Show me how to do a .