Another career path within financial services that can be highly remunerative is securities trading, whether of stocks or of bonds. Traders look to earn a "spread" between what they charge buyers and pay to sellers. The spread on shares of stock often can be mere pennies, but substantial profits can ensue from the sheer volume of activity.
The key personality trait in trading is the ability to think and act quickly, and to gain a feel for the direction of the market. Traders attempt to limit risk by maintaining as small an inventory of securities as possible. However, a sudden rush of orders from customers wishing to buy can create problems if inventory is too low, just as an avalanche of orders to sell will force the trader to accumulate excess inventory, which places more capital at risk. When trading imbalances occur, nerves of steel are an important attribute.
Unlike investment bankers, traders tend to keep regular hours, often ending work shortly after the normal close of the markets at 4 PM Eastern Time. If you have a knack for certain fast-paced video games, along with an aptitude for economics, perhaps trading will be a suitable career for you.
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Compensation for securities traders tends to be heavily weighted towards bonuses based on the profits that their trading activities generate. It is not unusual for top traders to earn more than senior executives in many firms.
In the determination of these profits, the conventions and assumptions utilized by their firms in the development of management reporting systems and transfer pricing methodologies play a critical role. During this writer’s career at Merrill Lynch, these were very contentious matters within the ranks of traders, since they had a direct impact on their compensation.
In particular, much debate focused on trades executed for retail clients through the firm’s network of financial advisors. In the case of some categories of securities, determining the value added by the retail distribution channel (and thus the amount of trading revenue to be transferred in these internal reports from the trading desks to the retail brokerage division) was subject to intense debate, with several plausible methodologies, offering varying results.
The most contentious issue of them all regarded the portion of the bid to offer spreads that theoretically would go to compensate institutional salespersons, in the case of trades with institutional clients. By rights, this slice of revenue (however measured) should have belonged to the retail brokerage division on trades made by retail clients through the financial advisor network, since no institutional sales person would be involved. However, the political clout of the trading desks was such that they were able to retain this revenue segment and have it augment their bonus pools.