Securities Sales and Trading
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.
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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:
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You'll need to pass the Series 7 General Security
Sales License Exam to sell most types of securities.
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Individuals who wish to sell commodities or futures contracts must pass
the Series 3 Exam.
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Most brokers also need to pass a Series 63 License Exam,
dealing with state laws regarding securities sales.
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Managers need the Series 8 License for general sales
supervisors in order to manage branch activities.
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Managers supervising options sales personnel or compliance need to pass
the Series 4 License Exam.
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.
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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. Throughout the summer, there were losses of
as much as 400 points per day. By fall 2007, the market was back to
reaching record highs again. So, 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.
The Bureau of Labor Statistics projects that the number of jobs in
securities, commodities, and financial services sales will grow by 9 to 17
percent between 2004 and 2014, which is about the same as the projected
rate of job growth overall. 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.
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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 (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—and there are
still quite a few—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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Compensation in securities sales and trading is almost always based on
commissions. Beginning brokers are usually given a small stipend (e.g.,
$2,000 per month) while they learn the business and study for the licenses
necessary to sell securities. Once they are fully licensed and able to earn
commissions, however, they are phased into a 100 percent commission-based
compensation package.
People entering the field from banking or other financial industries may be
able to command a guaranteed base, but in general you will succeed or fail
based on your performance. The good news is that your income potential is
truly unlimited: The more you work, the more money you will make.
Following are some sample compensation figures tied to different levels of
experience.
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First year: $30,000 to $45,000
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Second year: $40,000 to $75,000
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Third year: $75,000 to $150,000
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Fourth year: $100,000 to unlimited