Sales and Trading - A Comprehensive Guide

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What is the difference between Sales and Sales Trading? I know what Sales and Trading is, but I don't understand the difference between the roles called sales and sales trading. Does sales only speak to the client to get the best market prices or does sales trading do that? Can't tell the difference

What is Sales and Trading?

There are two primary functions to sales and trading. Here is a basic idea of each of those functions:

  • Sales: Pitch the firm’s ideas to clients to sell securities and build relationships with clients.
  • Trading: Trade securities, typically in two ways (there are other 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 prop trading, respectively).

Prop Firm vs Hedge Fund

Prop shop trading and hedge fund trading are two different beasts that are frequently mixed up. Here are the differences between the two, explained succinctly, from @derivstrading".

Prop shops, in general, are smaller and more nimble, and try to extract nickels from all over the place due to inefficiencies. (Some do it with statistical models; some with speed of execution; etc.) That is why you usually find prop shops in liquid and exchange based products, such as options and cash equities, for example. They tend to have very low overheads and capital requirements and are therefore usually seeded by the guys that started it/run it. There aren't outside investors, such as pension funds. This means they can make more in "performance fees" with less AUM.

So why are hedge funds all the buzz in the finance world instead of prop shops? There’s less influence on your trading from outside forces, less overhead, and less capital required for the same returns.

One huge difference between the two is in the investing style. Hedge fund trading is more along the route of what is traditionally known as investing, while prop shops operate more along the line of short-term trading. Prop shops hold securities for a much shorter period of time, and they try to squeeze out a quick profit from those holdings.

Is S&T a Dying Industry?

S&T has been a shrinking field for years now. Here’s the main determinant from @big unit", who refers to the trading floor as the shrinking jungle.

The trading floor is an awesome place, but it's shrinking. Regulations are putting a cap on how much risk many desks can take. Prop desks have gone on the sell-side, and have been replaced by small directional bets within flow trader books.

Because of this, fewer spots are available. While the number of students looking to get into S&T is only slightly decreasing, senior traders remain in the same position as there are fewer openings at other firms. Beyond regulations crushing trading desks, technology is adding a major strain.

Yet, trading will never cease to exist as many tend to believe. The above isn’t to scare you away from trading, simply to warn you of the fact that the industry is changing, and with those changes, headcount is decreasing. Here’s @Kassad" on why the sentiment that trading will be eliminated entirely is incorrect.

Okay, to think that any of these businesses will be "gone" any time soon is to lack an understanding of what they fundamentally are/do.

All of these businesses will change and continue to change for as long as capital markets exist: M&A will always be necessary in some form, the S&T function will be a necessary tool for moving capital, Research will be a necessity to transmit information from originators to clients, and all the other core functions of a bank will continue to fulfill their purpose as required. All of the roles will change with the coming of new technology, laws, and industry standards, but they will not "disappear."

Sales and Trading vs Investment Banking

People love comparing S&T to investment banking - they’re both highly prestigious jobs that pay great. But they don’t come without their differences, so if you’re considering a career in either of these fields, then you need to consider what separates the two.

Salary

Compensation in S&T is roughly comparable, if slightly less, than the compensation in IB. At the analyst level, you can expect to make around $120k first year. As you move up, that figure increases significantly. Managing directors can make anywhere between 500k - $1m. That said, IB all-in compensation tends to be a tad higher than S&T, and that difference grows a little as you move up the ladder. The top performers in S&T certainly make more than IB, but those top performers are becoming rarer and rarer, more on that later. In both fields, bonus makes up the majority of your all-in compensation by the time you’re a vice president.

Role

Investment bankers, at least at the analyst level, are known for being mostly grunts. The type of work analysts do is almost entirely mundane. Sure, there’s some exciting work dabbled in there. Executing that mega deal you’ve been working on for months is exhilarating, and there’s no doubt that it’s a time of immeasurable learning.

The work S&T analysts do is highly variable once they reach a certain point, but at the beginning, it’s comparable to IB (the key difference being the fewer hours). For first and second year analysts, it’s a lot of the same stuff. Similar to investment banking, the work of S&T analysts is mostly grunt work. Here’s @Gekko21" on what that includes:

Learning the product, sending out reports, conducting research, making spreadsheets for the desk, answering phones, and sending out early morning offer sheets are all things you will be doing for the first year or so.

The difference is that after a period of time - anywhere from 3 months to a couple of years, depending on your performance - you get significant responsibility, and your role changes.

On the trading side, the work greatly depends on one factor: getting your own book. Some people get their book within three months; some get their own book after a couple of years. It all depends on how much responsibility you shoulder, how capable you are, and how well you’re received.

Hours and Lifestyle in S&T

Everyone knows IB hours are brutal, typically 80+ hours a week. How does S&T compare? S&T analysts typically put in around 60 hours during the week, with some weekend work depending on how motivated you are. Once you start working with clients in sales or get your own book in trading, your hours and lifestyle are determined by you.

An Introduction to S&T

If you're looking to get into S&T, there are two things you should do, in particular, to prepare (outside of preparing for interviews and such): reading and trading. Reading to prepare is another beast. It's something you should do to expand your breadth of knowledge as much as possible. Here's a list of books you should read before you hit the desk from @Ironchef".


All junior traders on my desk were told to read the following:

1) When Genius Failed
2) Fooled by Randomness
3) Reminiscences of a Stock Operator
4) Trading in the Zone
5) Market Wizards (all 3-4 books)
6) Liar's Poker
7) Steidlmayer on Markets: Trading with Market Profile
8) Technical Analysis of the Financial Markets by John Murphy

Comments (59)

 
Dec 13, 2009 - 1:15am

Hey I'm not really sure, but here is my 2 cents worth

I think the Sales team will pitch to clients, build relationships and generally sell the bank ideas to clients. So these ideas could come from the researchers (since researchers dont really do the selling). During all these while, you are constantly busy building relationships and selling your ideas, so you dont really have much time to interact with traders.

Your clients may want to find out more info (like getting in/out at what prices etc) and so it gets tricky when most of your clients want to trade with you. Traders (flow traders not prop) themselves are busy trying to earn spreads and taking the orders.

So this is where sales trading comes into place. Sales traders are very close to the market. They dont visit clients and are thus desk bound. They know the trend of the market and the products very well (Sales people will be busy with their own pitchings and relationship buildings). They will interact with your clients to inform them at which price they should enter and at which price they should exit. If clients want to execute, Sales traders will inform the traders the same thing as well. Sales traders are very informed of the market. From what I know, there are times sales traders may execute the trades as well.

So to put it short, sales traders ensure the flow of information and trade requests goes smoothly. Hope that helps BUT i might be wrong alright.

 
Dec 13, 2009 - 2:26am

^Mostly correct

Equity sales (also known as research sales): Primary responsibility is to pitch equity research reports and notes to clients. As analyst, that is all you will be doing. When you move up to associate and beyond, you will be able to interject your opinion to a certain extent. This job is essentially all about relationships. If you are not the type of person who has a ton of friends and can walk into a room and immediately strike up a conversation with anyone, you are not going to do well in equity sales. Exit opps: investor relations at a company that you have covered or at a buyside firm

Equity sales trader: A trader/pm on the buyside gives you buy and sell orders. You then tell the sellside trader on your floor the order and the way that the clients wants it traded (VWAP, TWAP, or worked). It is then your job to stay on the trader's ass to ensure that the trader is trading it properly. You also discuss the reasons for the daily movements in specific stocks in contrast to equity salesmen who are more concerned with longer term catalysts. The job also requires social adeptness and you will be taking out clients at least twice a week.

 
Dec 14, 2009 - 1:44am

Grover Cleveland:
^Mostly correct

Equity sales (also known as research sales): Primary responsibility is to pitch equity research reports and notes to clients. As analyst, that is all you will be doing. When you move up to associate and beyond, you will be able to interject your opinion to a certain extent. This job is essentially all about relationships. If you are not the type of person who has a ton of friends and can walk into a room and immediately strike up a conversation with anyone, you are not going to do well in equity sales. Exit opps: investor relations at a company that you have covered or at a buyside firm

Equity sales trader: A trader/pm on the buyside gives you buy and sell orders. You then tell the sellside trader on your floor the order and the way that the clients wants it traded (VWAP, TWAP, or worked). It is then your job to stay on the trader's ass to ensure that the trader is trading it properly. You also discuss the reasons for the daily movements in specific stocks in contrast to equity salesmen who are more concerned with longer term catalysts. The job also requires social adeptness and you will be taking out clients at least twice a week.

when does the broker come into picture?? does the sellside trader call the broker to execute trades for him??

 
Dec 14, 2009 - 1:45am

Sales & Trading Clarification (Originally Posted: 01/01/2009)

For those who are knowledgeable about this business, could you please provide some clarity on what sales and trading encompasses? I have a clear understanding of the investment banking division and equity research. However, I only have a very general understanding of what goes on underneath the umbrella of s&t.

For example, so we don't have to re-invent the wheel, I know sales sells financial securities / products to institutional investors. I know trading is split into two general categories of prop trading and client (correct term?) trading. However, at the bulge level, there are a number of subdivisions within S&T...fixed income...electronic trading...institutional equity...special situation groups..

Where does ECM and DCM fall under? It seems like there are roles in S&T that don't directly involve doing sales or trading. The reason I am asking this, is because recently I've met a number of people who work within S&T and after a while, I started getting a little confused on what their job actually entails.

Also, if I met someone that works in Asset Backed Securities..that means they do S&T of asset backed securities right?

Array
 
Dec 14, 2009 - 1:46am

"About our Business"

ECM and DCM are capital markets groups, they pitch ideas to corporations relating to the issuance of equity (E in ECM) and debt (D in DCM). The ideas relate often to optimizing capital structure, de-levering/levered recap, advantageous refinancing due to spreads/term structure etc
plainly they are bankers focusing on origination of new securities.

if someone is in "ABS" he could be a banker structuring large deals, selling abs, or trading abs, or managing an ABS portfolio (buyside asset management) or researching abs (strategy)

 
Dec 14, 2009 - 1:47am

from wetfeet

Securities Sales and Trading
OVERVIEW
Securities sales and trading is where the rubber meets the road in the investment banking industry. An investment bank relies on its sales department to sell bonds or shares of stock in companies it underwrites. Investors who want to buy or sell a certain stock or bond will place an order with a broker or sales representative, who writes the ticket for the order. The trader makes the trade.

What You'll Do
Securities sales and trading are high-profile, high-pressure roles in the investment banking industry. Unlike other I-banking careers, such as corporate finance, public finance, and M&A, where the emphasis is on the team, securities salespeople and traders are independent, working on commission to bring to market the financial products that others create.

In the United States, the securities business revolves around markets (also known as "exchanges") such as the New York Stock Exchange, the Chicago Board of Trade, and NASDAQ, where debt, futures, options, stocks, and other financial instruments are bought and sold. Salespeople and traders are independent agents working under a simple contract: The firm provides a place to do business in return for a percentage of the business that salespeople and traders generate.

Salespeople are called brokers or dealers. As one of them, you're expected to build a "book" of clients. No matter how long you've been working, and no matter how many clients you have, you're expected to cold call. New brokers make as many as 600 cold calls a day. Most of the work takes place over the telephone: soliciting clients or selling a particular stock or bond issue. You'll use analyst research and every sales trick in the book to push your securities to investors.

Traders make money by trading securities. Although they're the ones who transact trades for the brokers and their clients, traders are primarily responsible for taking a position in a security issue and buying or selling large amounts of stocks or bonds using an employer's (or their own) capital. When they bet right, they win big; when they bet wrong, they lose big.

Brokers and traders build their lives around market hours. On the West Coast, you'll start working before 6:00 a.m., so that you're ready to go when the opening bell rings. There's no flextime, no long coffee breaks, and no time to run errands.

Who Does Well
Securities sales and trading is a high-pressure career. You're responsible for the financial fortunes of your clients—or yourself, if you're a lone trader. Every day you're making $100,000 (or more) decisions under severe time constraints. The daily fluctuations of stock prices can make you rich one day and break you the next. Brokers eat a lot of antacid.

Securities salespeople and traders work independently, usually with little supervision and very little interaction with management—provided they succeed. If they don't, they're quickly out of a job. To do well, you need a good head for numbers and a hidebound determination to make money.

If you're on the sales side, you'll need exceptional customer service skills; if you're a trader, you'll need to be able to handle huge risk—and stomach huge losses. The upside of these careers is the money brokers can make. Successful salespeople and traders can get very rich.

 
Dec 14, 2009 - 1:50am

a person in flow sales is in constant communication with buyside ppl all day. They provide mkt color and trade details to hedge funds, mutual funds, prop shops (the big ones). It is there job to relay bid/asks and volume to clients given to them from the traders and at the same time try to make everyone happy with the trade. The more trades printed the more commission a sales guy makes for the team. They are the liaison btw the traders and the buyside firms. An example of an interaction might be this...

-HF trader asks salesman, "Hey John, where can I buy X amount of XYZ?"
-Sales guy says let me see and then asks traders for a market.
-Sales guy comes back and tells buyside what trader says
-The trade either gets done, or there is further negotiation...

**They are basically doing the talking for the traders b/c traders don't have time to talk to each client.

 
Dec 14, 2009 - 1:56am

???

The who: If you are on a rates sales desk you work with other rates sales people and rates flow traders. If you are on an fx sales desk, you work with other fx sales people and fx flow traders (as well as perhaps structuring on occasion).

The what: You use one or two phones and a computer. The product you deal with is typically pretty obvious from the name of your team (rates sales, fx sales, etc).

 
Dec 14, 2009 - 1:59am

What is the SALES part of Sales & Trading exactly? (Originally Posted: 02/26/2010)

I understand that the Sales department would most likely be the ones handling the client relationships, but I was wondering if someone could go into detail on what an employee in the Sales part of an S&T/Capital Markets department. Average Day, skills necessary, difficulty to get in, average pay, etc.

Thanks!

 
Dec 14, 2009 - 2:10am

Pay is good. Basically when people will say they work sales and trading they are either on a trading desk trading the firms capital for a gain or on the sales side. These are the traders we traditionally think of.

The sales guys that put the "sales" in "sales and trading". These guys find companies that need capital and then sell the companies' stock/bonds to their clients (hedge funds, pensions, endowments). These guys especially at the MD level are client facing, frequently at dinners/traveling.

Pay is great and work isn't bad. Basically you work reasonable hours and just ball out. I'd say hit it up. They sit on the trading floor w/ prop desks although I think this is a conflict of interests. I think they might just segregate the floor.

 
Dec 14, 2009 - 2:02am

WTF BCBanker... You obviously don't know what you're giving "advice" on if you follow it up with a question like "Do they sit with prop traders?" Your post is also just plain incoherent.

Salespeople have a client base (institutional investors) and are constantly pitching them investment ideas and also trying to move shit the traders don't want on their books. Frequently they'll just be conduits for trades (client calls salesperson, salesperson yells to trader, trader quotes price). They're also the relationship contact of that client to the firm's trading ops, so a lot of the job is wining and dining -- pretty much everyone can do the job the same, so you have to make your client like you more than anyone else.

Skills necessary? Lots of soft skills. Obviously be good with people, be a good bullshitter (in both the "shoot the shit" sense as well as the poker face sense), be calm under pressure, be able to prioritize, etc...also depends on the product you sell. Exotics salesmen, or rate derivatives salesmen, will need a better grasp of math and finance than gov't and agency salespeople.

Average day is something like 6-7am to 4-5pm. Can't comment on pay, but figure it can't be too shabby.

 
Dec 14, 2009 - 2:07am

Ha. What is it about BC kids that make them "naturally retarded" and the school "totally shit"? Clearly not at the top of the academic tables but overall its solid and I enjoyed my time there.

It attracts kids who actually got laid in high school and are well-rounded unlike plenty of members on the board.

 
Dec 14, 2009 - 2:13am

What you need to show:

  • Sales skills: very personable and able to shoot the shit friendly; you should be able to talk at length about all things other than finance and markets, you should be able to establish a rapport, be able to relate to your clients (interviewers in this case) and be able for them to relate to

  • Knowledge and passion for the markets: you should be very knowledgeable about the markets and at the very least have a solid understanding about the product group in which you're interview

  • Be able to sell: they will WITHOUT EXCEPTION tell you to sell them something, ask you to make them a market for X

Its sales salesman... your job is to show that clients will like you, you know your shit, and more than anything else that you can sell.

Bottom line: know your client, know your shit and be able to sell.

Array
 
Dec 14, 2009 - 2:19am

Same as traders/IBD at analyst level. As you develop your rolodex (associate level and beyond), bonuses are tied to how many commissions (on trades) you generate. Typically the bigger the spreads on the product, the higher the comp. Back in 07, exotic credit salesmen (which involves structuring deals) in London were making 300k usd base and 4 mil usd bonuses at the MD level on average. That's the highest it's probably gotten in recent memory. For the majority of products and market conditions, big hitters probably pull down 1 to 2 mil in bonuses, and have standard base salaries. Expense accounts are usually generous when it comes to client entertaining.

 
Dec 14, 2009 - 2:20am

Sounds like GoodBread might know what he's talking about. I don't have first-hand information about sales guys salaries and firm policy prevents me from even throwing out a guess, but I'll say that if you go into sales because you're pretty sure you'll enjoy selling stuff, you're not going to be looking at somebody else's pay in five years and say, "Oops. I made a mistake. Should have gone into XXXX". You'll say, "Yes, he earns a little more than me, but he's aged ten years in the past five, so I got a better deal than him." I can't say quite the same thing about trading, risk management, analytics, or investment banking- actually, the only other area I can say this about is quantitative strategies/research, and that usually takes a PhD.

Client Trading Sales is the pinnacle of sales as a profession. You can't make anywhere near as much money elsewhere in sales (besides maybe consulting). My mom, who works in Pharmaceutical sales, would probably be able to retire if she were able to save up what these guys earn in a year.

 
Dec 14, 2009 - 2:30am

Welcome to the site, jcsiv. For really basic questions such as this people will often tell you to search for pre-existing threads - and this is good advice. There's a general FAQ section that has a good overview of sales versus trading.

Sales: //www.wallstreetoasis.com/what-is-sales

Trading: //www.wallstreetoasis.com/trading-overview

Essentially, the focus of someone in sales is on interacting with clients by way of offering trade advice/ideas. Traders are the ones who will create prices for complex products such as derivatives, and actually execute the orders that clients place.

 
Nov 6, 2017 - 10:33am

Sales or sales-trading? (Originally Posted: 06/24/2011)

Hey guys, I know there has been a bit written about this in the past but there is nothing that fulfills what I'm looking for...
I was just wondering about the differences between a normal sales (say equity sales) person and a sales-trader... Are there big differences in terms of exit opportunities, salaries.. etc... ???

Basically, I am just about to start a summer internship at a BB in sales - I will be doing two rotations - one on an equity sales desk, and one as more of a sales-trader for listed derivatives (to hedge funds, etc).

Would I be right in thinking that a sales person would generally take home better compensation and have better exit opportunities??? Do sales-traders just take order? Or do they actually provide ideas, and try and sell??

Any expertise at all on the whole sales or sales-trader, or anyone's preferences, would be a great help...

 
Nov 6, 2017 - 10:34am

I would imagine that a successful trader will have the opportunity to make much more than the salesman if his bonus parallels his value to the firm. Albeit the trader also holds the risk of underperforming (and therefore hindering the size of his bonus), he should have better exit ops because he has the opportunity to work at a prop trading firm/ HF/ etc.

Sales is sales. He who has the knowledge to actually execute the trades is at a much better advantage in the long run. Traders don't just take orders. They execute trades using the firms money and their own discretion. If the firm was calling all the shots, the entire trading process could be automated. The value of the trader is the fact that he/she has the potential to bring value to the firm (the risk is that he/she could also be a harm).

Think of the potential value somebody with a past in sales holds as compared to somebody with experience as a trader. Outside of the big banks, the trader has the potential to bring smaller firms some value (as a trader) whereas the salesmen's role is virtually non-existant (what is there to sell?). That's the way I see things.

 
Nov 6, 2017 - 10:35am

Hey mp6544, you have no idea what a sales-trader is, do you?

I sat with some sales-traders the other day, and what they said is the balance is essentially 80/20 in terms of sales vs. Trading.

They do add a fair but of value as well. Alot of their job is providing market color to clients, while their actualy trading is mostly consistent of working huge orders that would move the markets.

They also have to take on risk, as large orders will force them to take on a position for a period of time. For this reason, I would think that they would be compensated a bit better for that reason.

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