What it’s all about
What the trading department does, in very simple terms, is to execute all the trades which are made at an investment bank. If a client sitting somewhere in Mayfair wants to buy $20 million worth of Vodafone shares, they speak to someone in our sales department, who then talks to us. We are the ones who go into the market and buy them for the client.
I trade in shares, which is a key part of any investment bank’s business, so we’re at the centre of everything, and sit in the middle of the trading floor. We’re like the eye of the storm – as the FTSE (Financial Times Stock Exchange) ticks over, we’re the ones who are watching and trading in the companies it’s comprised of.
With the addition of some very smart people into trading, a lot of the more repetitive tasks have been removed from the department and we now deal more with high-level decision making. For example, if there’s a very big trade to be done, we’ll be talking to clients about what we’re seeing in the market, while smaller matters, such as buying ten shares in BP, have been automated.
How it brings in revenue
When we trade on behalf of a client, we get paid a commission, which is usually expressed in terms of basis points, which are equal to one hundredth of a percentage point. Clients come to the bank because we have the expertise to turn over a profit for them in the market. The commission is the price they pay for using these skills.
How it works
A member of our sales department may have spoken to a client who is interested, for example, in selling approximately $20 million of Royal Dutch Shell shares. The person in sales will approach me and I’ll be the one tasked with quoting a price to the client for that number of shares. Royal Dutch Shell at that time might only have the liquidity to sell $1 million or $500,000 worth of shares, in which case I’ll have to estimate the price based on my experience and knowledge of the market. Once I’ve done so, I speak to the client and we will progress with the deal if they think I’ve quoted a suitable price.
In order to be able to make decisions like these, I need to know the market. The biggest single challenge in trading is dealing with the amount of information you have in front of you every day. If I can find the one or two key things which are important out of thousands of pages of research, then I’m doing a good job. The difference between a good and a bad trader is the ability to pick out these nuggets.
In order to be successful, you have to learn how to talk like a trader. If you say something in a certain way, it means something very specific to a client or to a different trader, so you need to understand the language. One simple yet essential example is being able to understand the difference between a bid and an offer. It sounds obvious, but when you’re under pressure, with two or three people shouting at you at once, you need to be able to differentiate between them on the spot and quote a price confidently and clearly. If someone said to me today: “I want you to bid in a short 350,000 XYZ.com”, I would know exactly what they meant. At the start, I didn’t. To translate, this person is a seller, because they want you to bid (a buyer would ask a seller for their offer). They want me to quote a price at which I would purchase shares in the company mentioned. The use of the word “short” here means that the quantity involved is a number somewhere just less than 350,000, so perhaps around 330,000. It sounds rudimentary, but it takes some getting used to!
Trading is very different from the work that goes on in the deal-making arms of a bank, like the M&A department. Unlike them, I do so many transactions in a day, that it’s difficult to talk about any specific one. But that’s the thing I find really interesting about my work. It’s very exciting compared to almost any other job in the world because no two days are the same. I also like the fact that every day is a challenge. Because trades are all instantaneous, at 5.30pm you have a number on a profit and loss screen telling you if you’ve had a good or a bad day. I like that certainty, and it’s an incentive to always do your best.
I run the consumer book in UBS, meaning I trade in the companies who produce anything you can eat and drink. Whatever affects those companies and markets is a big issue for me, and it’s important that I keep on top of it all. For example, there’s another trader on the floor who trades in all the debt of the companies I look at. At the moment, there is massive linkage between the two markets because of the eurozone debt crisis, so we’re talking constantly.
The job and department are changing all the time. Processes are becoming more automated and the more that happens, the less need there is for a trader sitting on the floor. But there will always be demand for traders, as there needs to be an ultimate decision maker, making the key choices about when and how to trade. So the job is becoming a more skilled one, and I’ll be interested to see how it changes in the future.