What is Sales and Trading?

Many people on Instagram and on forums say they want to get into sales and trading as a dream job but don’t even realize what it really is. I will help you break down what sales and trading really is and the different types of seats that exist in there and what kind of backgrounds they are in.

What is their function in the Bank?

Sales and Traders primarily are responsible for providing liquidity to the buy-side. This can include liquidity to hedge funds, pension funds, sovereign funds and even corporates. Desks also provide liquidity to other internal desks looking to hedge with their products.

What are some desks in Sales and Trading?

  • Asset Backed Securities
  • US Treasury
  • Inflation
  • Emerging Markets
  • Mortgage Backed Securities
  • Corporate Credit Desk
  • FX
  • Commodities
  • Equity
  • Interest Rate Swaps
  • Rates derivatives
  • Equity Derivatives
  • Exotics

And the list goes on and on… Many of these desks have smaller internal desks within them. For example, Emerging Markets can have Emerging market equities, emerging markets FX and emerging market credit. Then the credit desk could be EM corporate credit and EM government credit.

What kind of roles are in these desks?

Let’s take an example from the US Treasury desk. US Treasuries are some of the most liquid products in the world and are utilized by most financial institutions. Almost all banks have a US treasury desk.

Sales: They are the connection between the bank and the clients. Every sales person usually has a specialization in terms of what type of clients they cover and for what kind of products. For example, there are Sales that cover only pension funds for Us Treasuries and then there are some that cover pension funds for only Non-dollar products, and some for just derivatives. So, one buy-side client can be covered by several sales people. This is starting to be consolidated further as more sales people cover more products and more clients. Sales in S&T are probably the closest in personality and education types to bankers. There is no inherent technical knowledge required although it is valuable to perform at the job. It is a pure sales job so more relationship based and if you can talk markets and know your products well it will only help you on the job.

Trading: Traders are the primary money generators for the company. The primary way traders generate profits for the bank is still through prop trading. Traders are not allowed to take risks as they used to be so the profits have definitely diminished but it is still the primary way.

The secondary way traders generate money for clients is by charging bid offer or a fee to clients to provide liquidity. This has been a way that many banks are trying to move towards as regulations for prop trading have gotten tougher.The problem with this is that unless its a liquid instrument traders make market and get put into positions that are illiquid and hedge with liquid instruments and hold the non liquid on their balance sheet. Proper risk management of their book is one of the primary jobs of traders. 

Traders are essentially the superstars of the sell-side. Majority of the CEO’s of investment banks are ex-traders. Many traders go on to start hedge funds. Almost all the famous hedge fund managers you know about were previously traders on such desks before. 

With trading getting more quantitative everyday majority of these seats are being filled by very quantitative individuals. On my previous desk almost everyone was an engineer who moved over to finance. Some of the simpler linear products don’t’ require very strong quantitative skills and you can find several range of academic degrees on those desks. If you are a fast thinker and a quick learner and have a passion for high speed markets this could be the spot for you. The future for traders is still quite strong and desks are constantly expanding into new markets and finding new clients as the need for liquidity goes up.  

Research/Strategist/Economists: Strategists and Economists are a very important part of Sales and Trading. Many banks have them in the S&T division although some might have it separate but they are considered front office. These teams do economic analysis and print research and articles utilised by the buy-side to make investment decisions for their portfolios. Their views are usually long term so it’s a good fit for buy-side accounts and not much for S&T traders as their horizons are much shorter. The idea for having such teams is to provide a service to clients and then convince the clients to give the traders and desk secondary business as “payment” for good research and analysis. 

These jobs are mostly for people with strong economics background. The senior people are usually basically at economics professor levels. Strategists focus more on micro economics and trading strategies whereas economists focus on large scale macro economics related themes. 

Electronic Trading/Algo Execution: With the automation of a lot of trading nowadays of the liquid instruments there are large algorithmic trading and execution teams at banks now. They are mostly comprised of programmers. They develop methodologies and algorithms to price inquiries automatically. They utilise prices that the traders have so work pretty closely with the traders on the desk. They are mostly computer science and engineers. 

Front Office Support/Quants: There are a range of support staff that help the traders with their day to day needs. Many banks call them strats and they can sit with the team or they could be a separate strats team. They are basically there to help the traders do whatever kind of analysis that is required to make their day to day pricing and portfolio management easier. They can help build pricing models, come up with statistical analysis and charts for certain types of trades. Many a times these quants also become traders as opportunities arise if they have shown the acumen for the markets.