Sell-Side Equity Trading v Fixed Income
Hi - I'm just wondering what it is that sell side equity traders actually do?
I think I understand how it works in the fixed income space and please correct me if I'm wrong. Flow traders, as I understand it, work in conjunction with the sales teams who are speaking to clients (hedge funds, asset managers, pension funds whoever) to gauge what their needs are and what they're looking for. The flow traders on the sell side are out making markets with their clients in mind with the idea being to try and buy and sell in the OTC markets with the hope of making the firm money i.e. the sales person communicates to the flow trader that hedge fund x wants to buy x amount of bonds at price y and the flow trader will try and buy these bonds and then offload them to the hedge fund at a higher price than what they paid for them (in simple terms at least, I know there's much more that goes into this). Furthermore, the flow traders are basically buying and selling from the other flow traders on the street and the inter deal brokers are essentially the middle men for these trades who match up buyers in this market.
I understand the need for flow traders in the fixed income space given that the fixed income markets are generally OTC, but given that equities are exchange traded, then what is the need for equity flow traders at these firms? Why can't clients of the sell side like asset managers, hedge funds etc just do it themselves? Are flow traders generally just holding on to positions that they feel are undervalued or overvalued and hold these position for weeks / months at a time in the hope that they can offload these to clients at a profit i.e short stock x, buy it back and lock in the profits and then try and offload this position to a client on the buyside? If this is the case then are the flow traders trading basically with other traders on the street?
I don't know if this makes much sense to anyone but I'm just not quite sure about how the process works on the equities side of the sell side. I think I have a good handle on how it works on the fixed income side (I think I might be wrong of course).
If anyone can me help me with this I'd appreciate it greatly.
Advice I got from a Wall Street old-timer: if you want to be sales & trading, run away from liquidity. Get on a muni desk, a credit trading desk, an ABS desk.. just get as far as you can from the machines, because they will eat your job.
That said, my sense of sell-side equity trading is that you're essentially managing large orders. If an institution wants to sell 1mm shares of Google, you can't just route the order straight to the exchange.. your client would get wrecked. So you clear blocks over time and across exchanges/dark pools/etc, achieve the best execution possible.
ive probably posted this 4-5 times now, and i'm sure i'll do it again, but nobody seems to realize that "equity flow trading"=/= "cash equity trading" and nothing else. Yes there are still flow traders who trade GOOG and all the other single name equities and whatnot, but the majority of the trading side in the equity space is still made up of the less liquid products, ie index vol, single stock vol, correlation/dispersion, var swaps, latam cash/latam vol, special sits/special sits vol (merger arb), delta one (equity swaps) as well as the exotics structuring desks. for whatever reason on this site all equity traders are believed to be cash traders doing nothing but trading AAPL all day, which is simply incorrect.
This. US cash trading is getting smaller every year. Margins are razor thin, and many trading roles in cash are being replaced with sales trading, agency trading. OP clearly put a lot of effort into this post but didn't do much research. Equities trading is not what you see in the movie Wall Street. (Hint: nothing is like what you see in Wall Street.)
I used to work as an agency and cash equity trader. Nothing cool about it, just doing a lot of internal crossings and placing T-/VWAPS. Warehousing shares we traded often so I could cross/allocate them to client orders later on (not front running, big difference). Hours were okay and you needed a big network of traders, sales and sales-traders when you were crossing volumes not big enough to go through the guys in ECM.
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