Sales and Trading...

Question

So, as I start my quest for discovering what I might want to try over the summer, S&T seems increasingly interesting. I dont spose anyone here has any insights into it?

3underscore · Answer

If your fixed hours are 7am-7pm then you may well be on to something.

The broohah of Investment Banking's big swinging dicks are more in force in S+T, as it is suited to that (depends on markets though). FIASCO and Liars Poker are still seen as a pretty good grounding on what it is like.

It is hard work and hard hours - people I know who do it cr@p out in front of the TV on the sofa most nights by 8pm. A lot of it is interesting in a mathematical principles kind-of way.

3underscore · Answer

I should add to that - I know guys who are new into firms who work a lot longer than 7-7. they engage in this stupid "stay till my boss leaves" nonsense (on the trading desk) and he was working till 9-10 most nights.

I personally think he was stupid to do that (its degrading as far as I am concerned to engage in such) but... some people do.

diegmat · Answer

I work in S&T and would say it really depends. Would avoid equity research sales at all costs. Its a dying business. Same can be said for sales traders on the equities side. All the "Equities in Dallas" stuff - is all true.

I would say if you have an oppty to work on Goldman's prop desk - or maybe on the sell side fixed income side. It could be good.

Otherwise its not nearly as glamorous as it seems - on the sell side at least.

kidderek · Answer

What kind of salary can you pull down in middle office? I recently met someone who works middle office/risk management who is a first year out of berkeley MFin making $150k. Reasonable?

yb · Answer

I agree...plus, regardless of what you trade, exit opps are limited compared to IB. I know it's not for me - going home at night knowing you have open positions and that an up/down in crude the next day could screw you. Fixed income and structured derivatives seem more interesting.

gmatclb · Answer

Do they still do this on the sell-side?

I'd imagine the sales and trading desk would be different than a prop desk at the same firm. The sales and trading desk would just be working for commissions by matching buyers and sellers. They wouldn't hold any positions. The prop desk would be the guys that hold positions.

I've always seen sales and trading desks largely driven by commissions. They don't try to make money on taking positions.

diegmat · Answer

Kidderek - sounds high for middle office. But could be doable if the guy had some experience and was a little older.

yb · Answer

Yes, you're right.

londonluddite · Answer

I work for in Ops for the Rates (i.e. Govt bonds) sales & trading business of a large IB in London. It can be very lucrative, but it really depends on what desk you are on (and how good you are). In general the more liquid the instrument you are trading the less lucrative it is.

The top dogs (VP and above) rarely do more than 7.30 - 5.30. Associates and below are looking at longer hours, but this again depends on what desk you are on. If you are market making Govt bonds, then there is not much reason to be in work after the market closes (and most aren't). If you are a hardcore quant exotics trader, then the market hours have little relevance to you, and as such you have more leeway.

In terms of $$, the top traders make between $10-80 million profit for the bank a year. They will get somewhere between 6-12% of this as a bonus depending on various factors (i.e. how easy it is to make money in that market). Most will be on a basic of around $200k. An average trader will be making around $5m profit, and again will get about 10% bonus. A fresh out of Business School MBA grad will doing well if they make in the region of $1-2m profit.

In terms of MO jobs, Operations, and Technology (writing spreadsheets etc) hours are similar but the pay isn't :cry:

. A fresh out of undergrad MO / Ops hire starts on $70k. An Associate (which most decent ugrads attain after 3yrs ish) will be on 100k. Senior Associate / team leader / low rank manager will be on 120-150k ish. At VP / manager level you are looking at around 180k - 250k. Above VP level you have Exec Directors and MD's. There are almost no non front office MD's, but the ED's are probably on around 300k.

. A fresh out of undergrad MO / Ops hire starts on $70k. An Associate (which most decent ugrads attain after 3yrs ish) will be on 100k. Senior Associate / team leader / low rank manager will be on 120-150k ish. At VP / manager level you are looking at around 180k - 250k. Above VP level you have Exec Directors and MD's. There are almost no non front office MD's, but the ED's are probably on around 300k.

londonluddite · Answer

all the sell side market makers have the ability to to take positions where i work, even the newbies. whether they use it or not is up to them.

yb · Answer

londonluddite - at what level do MBA's start (in terms of title) and how much does previous trading experience help? Do they all start at the same level regardless of background (as w/ IB)?

Thanks.

londonluddite · Answer

In my experience they all start as Associates, I'm sure there are exceptions - but I do not know of any. Sales and trading is most definitely the most meritocratic (is that even a word :lol:

) area you can work in. Previous experience will help you get the job in the first place, but its unlikely to help that much once you are in, as promotion and renumeration are based on your performance. There are no defined rules to promotion. If you are sh*t hot then you can be MD before you are 30 (not kidding), but if you are terrible you might take 5 years to reach Associate (but more likely you will get canned first). One of the most important MD's in my area is little over 35.

naturallight · Answer

Hi londonluddite,

Would you be so kind as to elaborate more on the type of trading jobs at your bank? 

I can think of a few different types of trading, with some being a little better than others. Can you let me know which types of trading jobs are at your bank? 

1. Operational trading: execute the orders from the portfolio manager to buy or sell. Rebalance an fund to more closely match an index. Gain efficiencies by crossing orders with other traders. Mask big orders by going through multiple dealers. Requires very few opinions about the market or company quality. 

2. Speculative trading: trade based on economic reports, company analysis. Try to "lead the pack" based on immediate access to information and ability to trade quickly. Typically hold positions for short periods of time. Requires very few opinions about the market or company quality. 

3. Arbitrage trading: use a math model or algorithm to exploit small price differences in fx rates, convertible bonds, indexes vs underlying assets. Requires heavy quant background. 

4. Market-making trading: acting as a counterparty to the other side of the client. Charge a spread to make money (as opposed to analyzing where the stocks are going to go). Hedge stock exposure. 

5. Something I missed?

naturallight · Answer

I found this thread on a CFA message board. I believe the guy in  blue  works in sales for a big I-bank. He talks a little bit about trading too. 


 I sell bonds to institutional clients. Traders in this business do two things:

1 - buy and underwrite product for me to sell

2 - buy and sell product with other dealers to generate desk profit

Fixed income houses usually have traders for each type of security. IE we have an Agency desk, a corp desk, an MBS desk, each of which is responsible for knowing their market, finding me the best priced product to sell, hedging inventory, trading inventory for profit with other dealers etc.

By and large they make pretty good money because they get a cut of the desks profit...which is mostly generated by the sales force. A salesman takes home a portion of the commission he generates...a trader takes home a smaller percentage of what everyone sells. Judging by the size of the houses and the number of ex-wives they do pretty dang well for themselves.

Of course fixed income is a cyclical business and we're all suffering now. 

 >if you don't mind me asking, what did you do to get the job...what were your qualifications? 

 I was leaving work late one night and ran into the guy that ran the office leaving late as well. He told me what they did and I hounded him for a year to hire me.

I had been running a retail equity trading desk, then had experience in the risk management area of a large regional bank.

We sell fixed income to banks so it was a natural fit. After he hired me he said the reason I got the job was because I wouldn't quit calling him. Thats what it takes to make it in the business. Tenacity. 

 >I was a was a floor trader on the cboe floor for 10 years. The best traders tended to be very good at math, fast, emotionally disciplined, contrarians, and have a very thick skin. I saw many very smart people fail and people I thought were idiots do very well.

>do you think FI is down? it looks like so but what about derivatives, credit and other fast-growith products? 

 Depends on your customer base. I call on U.S. Banks, they tend to be pretty conservative in the investment arena. They have to operate within their investment policy, and they are heavily regulated. Banks over, say, $5 Billion in Total Assets start to use more derivatives, but I call on banks under $5 Billion in Total Assets, and as a guideline they are pretty straight forward Fixed Income investors. Muni's, MBS, Agencies, Hybrid ARMs, CMO's. Not too many that are into corporates now-a-days with the poor risk/reward relationship that exists currently.

Loan demand is what is killing us. If banks have customers willing to do loans at 8% they won't have money sitting around to buy bonds at 5%. Once the consumer slows down our gravy train will be rolling again. 

 >Hey Greenspan--how do you like your position? Is the money as good as they say? How is the sales aspect? Do you find yourself spouting out a lot of bullsh!t small talk or is it strickly business? 

 I call on US banks and when the economy is doing poorly we make a LOT of money. When I say it pays well I'm talking about normally having 2 digits, sometimes 3 digits to the left of the comma on your MONTHLY paycheck. Every firm has a few guys making millions a year. It's not easy, and they've usually been there a while...but they are there. To put it in perspective, two years ago one well known fixed income house fired everyone that wasn't grossing 200,000 a month. That was the minimum. That is an extreme example, but those are the numbers we're talking about.

The problem is that banks have been making loans non-stop for four years running now. Compounding the problem is the shape of the yield curve which is squeezing Net Interest Margin at banks which spurs them even harder to find more loans. They are paying 5% for funds and can put them into bonds at 4.80 to 5.50 or into loans at 8.00%.

Sales aspect - at the end of the day you have to sell. It's not an easy job and thats why it pays well.

It's a relationship business so you do wind up talking about a lot of non-revenue-generating topics with your active customers. But thats not a problem because by then you're usually on pretty good terms with them. About half of my active customers I would consider friends. It's nice to talk with a friend for 30 minutes then have him give you 30 million to invest.

When loan demand goes away we'll be back in business...til then...we suffer. 

 >is it possible to get into sales from UG, or very early into your career? 

 You can get into sales from almost anywhere. There are a lot of guys that start right out of college. It certainly makes a more compelling case if you have an accounting/banking/investment background but it's by no means necessary.

You just have to know that if it doesn't work out they give you a cardboard box and 30 minutes notice to get out of the building. It's really that simple.

From the firms perspective it's a numbers game. They'll hire you for a few months at an annual salary of 17,000 a year and if doesn't work out they'll fire you in month 3 or month 6. They'll make up the money they paid you in one trade.

It's pathetic to watch as a guy gets his name called out over the loudspeaker for all the salesforce to hear...then they watch as he does the walk of shame in front of his peers to the personnel office to get fired. That tactic is designed to motivate the remainder of the sales force...and I'm not talking about bucket shops doing this...these are guys in the top 20 debt underwriting arena. These are firms that put up massive numbers in terms of commissions. 

 >well that would sure as heck motivate me, that sounds like a cool environment, funny stuff.... 
>i heard for some kinds of products though you need to be up to date on the whole macro outlook and may need some very good math skills....for instance like commodities....

>where do you think the CFA comes in handy in sales? do you make models, valuations, etc...

>Thanks, sorry if my questions seem dumb.... 

 Not dumb at all. I can only speak from the perspective of selling to depository institutions. A solid understanding of bond characteristics, valuation, z spread, OAS, monetary policy, duration, convexity, economic indicators and what they mean, etc form the basis for understanding the bond side of things.

From there you need to understand how a bank works, why a bank has an investment portfolio, what the regulatory restrictions are, how their investment policy affects their decisions, which fixed income products will best help them achieve their portfolio goals, etc.

The FSA stuff has come in handy as well. FAS 159 has been a big, big deal for the last three weeks. Without a working knowledge of FSA I wouldn't have known what they were talking about when they said FAS 159 might allow an institution to Fair Value some investments, mark them to market as of year end, sell them, run the loss on sale through their capital account and avoid the income statement entirely. Without FSA I wouldn't have had the insight to know that banks really don't want to use Fair Value accounting because the unrealized gains and losses all run through their income statement, which creates earnings volatility, and leads to lower stock prices. I wouldn't have had the knowledge to realize that the SEC would likely frown upon FAS 159 transactions because it might create a lack of transparency. As much as I loathe FSA it has really come in handy in a lot of real world cases.

The CFA curriculum definately helps.

lepium · Answer

I met a Ross 2nd year student who landed an S&T position with UBS somewhere in Connecticut (a campus type facility). He focused in Finance during his stay at Ross and got a nice offer from UBS. His pre-MBA experience was not related (accounting for a manufacturing firm) and his summer job may have been in IB (I'm not 100% sure).

It looks like a realistic switch. 

Cheers. L.

rhyme · Answer

It seems appealing, the only thing that scares me is the whole "you can be fired in 10 seconds" kind of thing. One bad position, one bad trade, you could be done for.

kidderek · Answer

Sales and Trading appeals to me as well. Although you have the possibility of the above scenario happening, you won't be put in that position until you really know what you're doing. The only downside I see is the burnout rate and exit options.

Tuneman · Answer

I am suprised to hear about the hours, I usually heard that S&T (on the sell side) is the facet of IB'ing with the shortest hours. Usually an hour before the market opens and maybe an hour after, can anyone shed light on that?

Porscheboy16 · Answer

Let's say you get fired. What options do you have from there?

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