Working in finance: trading
In this article, Alexandre VERLET (ESSEC Business School, Master in Management, 2017-2021) describes in detail the daily routine of a trader.
An iconic, yet unknown position
Trading is undoubtedly the most iconic position of the market finance sector. Yet, popular movies (The Wolf of Wall Street, Margin Call or The Big Short just to name a few) contributed to build a myth around traders that belies the reality of the job. Moreover, the constant decrease in the number of traders in the past decade due to the automatization of the trading tasks makes it harder to come across a real trader nowadays. Since assistant traders are all the more scarce, it is almost impossible to find anyone among your ESSEC peers with a trading internship experience, which is probably why very few students actually know what the job is about and even considers giving it a try.
So what does a trader actually do?
Well, basically three things: hedging, speculation or diversification.In all cases, the traders’ activity depends on the products they trade, which defines the type of risk they take and the techniques they use.
- FX traders buy and sell forwards, futures, options, and swaps of national currencies on the Foreign Exchange (Forex) market, the most important market in terms of volume
- Fixed-income traders mainly trade government and corporate bonds, relatively low risk products that generate fixed cash flows, but which face interest rate risk and default risk.
- Equity traders, the best known but much smaller in volume than debt markets, buy, sell (or short sell) company shares on the stock market.
- Commodities traders buy and sell forwards, futures, options of raw products such as oil, gold, coffee or even cattle.
A trader works in a trading floor with front officers, and works on daily basis with quants, sales, middle and back officers, positions that few people outside of the financial sphere actually know about.Unlike in movies, it is usually rather calm, but the work environment can definitely get lawless when markets plummet. The main task of a trader is to complete transactions based on the live information displayed on his or her nine computers, on behalf of the employer or a client. But trades are not placed on a simple hitch: modern traders also evaluate and improve trading algorithms, implement trading strategies designed by the quants, check that their portfolio is guideline compliant and report their P&L on a daily basis.
Every day is extremely intense and requires the trader’s full attention at all times, but the working hours are much tighter than in other well paid financial positions, and usually run from 6 AM to 6 PM. Of course, the salary is undoubtedly the main driver for traders, but there are huge earnings inequalities among traders. Within the “high-earners”, the salary + bonus range from 1 million to 50 million euros a year. But those happy few are much less numerous than two decades ago, as there are just a few thousand of them in all Europe, and mostly in London. The starting salary in investment banks ranges from 60K to 90K euros, but graduates start as assistant traders rather than actual traders. With a couple of years of experience, the promotion to the rank of associate brings 6 number figures with a 50% average bonus. Once again, it all depends on the trader’s performance and the type of risk he or she takes.
What does it take to become a trader?
To be a trader, one needs similar qualities as in any financial position, but they have to be a lot more developed than what is usually expected: extreme resistance to pressure, extreme rigor, thinking and acting in seconds, and unbounded ambition. Regarding the hard skills, a solid knowledge of financial markets, financial mathematics, and programming (VBA, C++ and Python) are expected, which is why traders usually have quantitative degrees. This is particularly true to work as a trader in France, where most trader come from top engineering schools or specialized masters (Dauphine or Paris VI). Nevertheless, an ESSEC degree, preferably with a finance track, is more than enough to pass the screening of the London offices of major banks, and the rest mostly depends on the performance in interviews and assessment centers (AC).
The main employers are the major banks (JP Morgan, Deutsche Bank, Citi, Goldman Sachs, BAML, UBS, HSBC, BNP Paribas, Soc Gen, etc.) in cities considered as financial centers (London, New York, Hong Kong, Frankfurt, Paris). To get in, you need to apply for a summer internship in the Sales & Trading department from October, pass the screening and a phone interview, and then go to London for the assessment center. Smaller structures such as Treasury departments within companies or hedge funds also employ traders but buy-side traders are growingly considered as mere executioners of strategies designed by algorithms or senior investors and are therefore more exposed to the AI revolution. Although it gets trickier every year to get a job as a trader, the high earnings and the adrenaline still makes it a very attractive position for many graduates.
Related posts on the SimTrade blog
▶ Poff M. Film analysis: The Wolf of Wall Street
▶ Verlet A. Classic brain teasers from real-life interviews
About the author
This article was written in May 2021 by Alexandre VERLET (ESSEC Business School, Master in Management, 2019-2022).