Career Overview: Securities Sales and Trading

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Posted by The Editors on December 3, 2012
Overview
Securities sales and trading is where the rubber meets the road in the investment banking industry. An investment bank relies on its sales department to sell bonds or shares of stock in companies it underwrites. Investors who want to buy or sell a certain stock or bond will place an order with a broker or sales representative, who writes the ticket for the order. The trader makes the trade.

What You'll Do

Securities sales and trading are high-profile, high-pressure roles in the investment banking industry. Unlike other I-banking careers, such as corporate finance, public finance, and M&A, where the emphasis is on the team, securities salespeople and traders are independent, working on commission to bring to market the financial products that others create.

In the United States, the securities business revolves around markets (also known as "exchanges") such as the New York Stock Exchange, the Chicago Board of Trade, and NASDAQ, where debt, futures, options, stocks, and other financial instruments are bought and sold.

Salespeople and traders are independent agents working under a simple contract: The firm provides a place to do business in return for a percentage of the business that salespeople and traders generate.
Salespeople are called brokers or dealers. As one of them, you're expected to build a "book" of clients. No matter how long you've been working, and no matter how many clients you have, you're expected to cold call. New brokers make as many as 600 cold calls a day. Most of the work takes place over the telephone: soliciting clients or selling a particular stock or bond issue. You'll use analyst research and every sales trick in the book to push your securities to investors.

Traders make money by trading securities. Although they're the ones who transact trades for the brokers and their clients, traders are primarily responsible for taking a position in a security issue and buying or selling large amounts of stocks or bonds using an employer's (or their own) capital. When they bet right, they win big; when they bet wrong, they lose big.

Brokers and traders build their lives around market hours. On the West Coast, you'll start working before 6:00 a.m., so that you're ready to go when the opening bell rings. There's no flextime, no long coffee breaks, and no time to run errands.

Who Does Well

Securities sales and trading is a high-pressure career. You're responsible for the financial fortunes of your clients-or yourself, if you're a lone trader. Every day you're making $100,000 (or more) decisions under severe time constraints. The daily fluctuations of stock prices can make you rich one day and break you the next. Brokers eat a lot of antacid.

Securities salespeople and traders work independently, usually with little supervision and very little interaction with management-provided they succeed. If they don't, they're quickly out of a job. To do well, you need a good head for numbers and a hidebound determination to make money.

If you're on the sales side, you'll need exceptional customer service skills; if you're a trader, you'll need to be able to handle huge risk-and stomach huge losses. The upside of these careers is the money brokers can make. Successful salespeople and traders can get very rich.
Requirements
There are no hard and fast educational or professional prerequisites for selling securities. However, the National Association of Securities Dealers (NASD) and the Securities and Exchange Commission (SEC) require brokers to get licenses, depending on a particular broker's role:

.    You'll need to pass the Series 7 General Security Sales License Exam to sell most types of securities.
.    Individuals who wish to sell commodities or futures contracts must pass the Series 3 Exam.
.    Most brokers also need to pass a Series 63 License Exam, dealing with state laws regarding securities sales.
.    Managers need the Series 8 License for general sales supervisors in order to manage branch activities.
.    Managers supervising options sales personnel or compliance need to pass the Series 4 License Exam.

For more on licensing, visit the website of the Financial Industry Regulatory Authority (FINRA). FINRA was formed in 2007 when the enforcement arms of the NASD and the New York Stock Exchange merged.

Would-be salespeople must also pass a background check to make sure they have no criminal history that would preclude them from being an "honest" broker.

Aside from the background and license checks, branch managers hire salespeople based on evaluations of candidates' ability to think on their feet, communicate effectively, deal with numbers, and, above all, make cold calls. Traders can break in by assisting other traders on the floor and starting trading accounts.

Image means a great deal in sales and trading: How you dress, how you carry yourself, and how you act will be as impressive to a securities sales manager as your educational or professional background. If you have experience in sales, that's a plus, but a manager is really looking for people who will put in the hours, make the calls, and generate revenue. And as in all areas of financial services, networking is key. Scour your alma mater's alumni connections, pester your friends and relatives, and follow any lead that might get your foot in the door.
Job Outlook
The stock market is always a wild ride. In the summer of 2007, the subprime mortgage meltdown sent tremors though the market a week after it had reached record highs in June. Since then, the market has seen all-time lows as well as optimistic highs, and there's an ongoing debate about whether the markets will stabilize anytime soon. The bottom line: if you don't have the intestinal fortitude to weather the yo-yo-like earnings and losses of the market, then this might not be the job for you.

There's also a chance that new government regulation as a result of the economic crisis could change the future of trading certain securities. In June 2009, President Barack Obama's administration released a Treasury report detailing its intentions to reform financial regulations. The report included measures to force stock brokers to act solely in the interest of investors as opposed to themselves, and Obama has expressed a desire to regulate previously unregulated financial activities such as hedge funds and the trading of some over-the-counter derivatives (derivatives not traded on an exchange). It remains to be seen what regulations will be enacted.

Still, the stock market remains in tact. The Bureau of Labor Statistics projects that the number of jobs in securities, commodities, and financial services sales will rise 46 percent between 2006 and 2016, which is significantly more than the 11 percent increase projected across all industries. Fortunately, because this profession is associated with so much burnout, the turnover rate is high, which means more jobs for those starting out.

With online and self-service brokerages, investors can self-direct their own investment strategy, but most are willing to pay qualified professionals to guide them. In addition, many brokerage houses have access to research and historical data that would take the average investor months to track down. This can help brokers make more educated and rational decisions than the layman. No matter who actually places a buy or sell order, there will always be a need for securities traders who work behind the scenes, locating the buyers or sellers who are willing to accept the securities transactions their clients or brokers want to make. But expect to face rigorous competition for securities sales agent positions, where only the most experienced applicants will get the job.

Career Tracks
In securities sales and trading, you're in business for yourself. If you are a sales representative, your career track will consist of building your business, or book, until you have a substantial number of clients for whom you trade. If you're a trader, your career track will consist of trading financial instruments (stocks, bonds, and other securities).
As with securities sales, the job of the trader doesn't change over time; traders get sharper, develop better instincts, and benefit from experience as they go along. Due to the pressure of the career, few last to middle age.

If you're an undergrad or MBA interested in trading, check out internship opportunities. Many firms offer summer positions to outstanding students, providing candidates with much-needed experience and connections. Check out a company's website to research its internship offerings.

Securities Sales Representative or Broker

Securities sales representatives-or brokers-act as intermediaries between buyers and sellers, and they make money off of commissions. In some cases, such as when trading stocks, bonds, and options, they need to be registered as agents of an investment house. Brokers give advice to customers and then make deals happen. Usually they specialize in a particular type of security, such as futures, options, or bonds.

Those who do well make a lot of money and may get a larger office and an assistant, but the work remains fundamentally the same. Brokers are sometimes called dealers, investment advisers, investment counselors, or investment representatives, but the work is the same.

Branch Manager

Senior sales representatives who have proven themselves on the trading floor may become branch managers. Branch managers hire salespeople, fire those who don't do well, and make sure that brokers meet sales and revenue targets. While branch managers make additional income in the form of commission overrides (a percentage of the commissions made by the brokers working under them), they're responsible not just for their sales, but their office totals.

Floor Trader

Floor traders run around the floor of an exchange (e.g., the NYSE), swapping tickets and making trades. Floor traders are responsible for locating the buyers and connecting them with the sellers (or connecting the sellers with the buyers). As prices change quickly in a turbulent market, traders are under constant pressure to get deals executed at the prices their clients (or their employers) specify. If a trader can't find somebody to buy or sell at a specified price, the buy or sell order won't go through, and nobody profits-not the buyer, not the seller, and not the trader (or the trader's employer)-because there's no commission. Traders work during an exchange's hours of operation, usually without breaks. While floor traders used to be common, there are predictions that this track will phase out over the next few years, as more brokerages work with electronic trading tools.

Desk Trader
NASDAQ is what might be called a virtual stock exchange, as there is no physical building where traders meet to make deals with each other. Brokers have a "NASDAQ desk," which means they can trade on NASDAQ. That desk is actually a bank of traders, all staring intently at their computer screens to see how the market is shaping up, speaking into several phones at once in a mad rush to find buyers or sellers whom brokers or online investors have requested. (Trades made through an online account, such as at Charles Schwab or TD Waterhouse, go directly to the trader, bypassing the broker.)

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