Career in trading
Trading – where and how?
In the financial world, 'trading' (or 'stock trading') is the generic expression for buying and selling securities.
Some markets are physical in the sense that buyers and sellers (or at least their representatives) meet to trade, e.g. at the trading floor of the New York Stock Exchange or the Chicago Board of Trade. Other markets, e.g. for foreign currency ('forex'), are merely a network based on communication via telephones and computers, with no physical meeting place.
Most financial institutions, like brokerages and investment banks, have their own trading floors (a.k.a. 'dealing rooms'), where traders complete their transactions over the internet or via telephones.
The dealing rooms are often divided into trading desks (a.k.a. dealing desks) depending on the characteristics of the instrument traded. A trading desk provides traders with access to instantaneous trade executions.
Trading desks can be either large or small depending on the organisation and are occupied by licensed traders, usually specializing in trading one particular type of investment product (e.g. equity, fixed-income, commodity, foreign exchange, futures and derivatives).
The job of a trader
There are two basic types of trader: proprietary traders (a.k.a. 'market takers') and flow traders (a.k.a. 'brokers'). Most traders are flow traders, who buy and sell products on the financial markets on behalf of clients.
While flow traders trade on behalf of clients, a handful of traders trade on behalf of the organisation itself. These are the so-called 'proprietary traders'. Their basic aim is to buy at low prices, and sell at high prices, an achievement which requires both judgment and luck. Proprietary traders can make stupendous profits; they can also make considerable losses.
Fortunately, proprietary traders are not personally liable for misjudged trades which result in large losses. However, if they make large profits for the organisation, it is usually reflected in their end-of-year bonus.
At first glance, the day-to-day existence of a trader may seem less glamorous than that of some of their colleagues in other fields of e.g. investment banking. Traders rarely fly around the world, and infrequently go out for business lunches. If you work as a trader you can instead expect to spend your working hours seated before an array of computer screens in the company of many, sometimes hundreds of, other traders on the 'trading floor'. The screens are a window into the financial markets, and show movements in the prices of financial instruments. As well as monitoring prices, traders also keep a close eye on world news, as these can have an immediate effect on prices.
Despite the picture painted by e.g. many Hollywood films, trading can be exciting and well-yielding. If a trader is very good, he or she can often earn more money than anyone else working in investment banking. Good traders make snap decisions worth many millions of dollars in the space of just a few seconds, and can make substantial profits in the process.
The best traders are passionate about the financial markets and can function well under pressure. They have strong self-confidence, but also know when to cut their losses. Good traders are comfortable with numbers and able to think 'on-their-feet' and react quickly to changing market conditions. They can evaluate risks and multi-task.