What is fixed income?
The term "Fixed Income" is used traditionally to refer to products with fixed schedules of returns to investors, but in practice nowadays is used to refer to the division of the bank that deals with credit, bonds, interest rates and foreign exchange, as opposed to equity or commodities.
I work with foreign exchange products, specifically with emerging market currency options and multicurrency options.
How do traders provide a service for the bank's clients?
In Trading we work with the Sales and Structuring teams to enable customers to take on or dispose of particular risks. A customer might see an opportunity to make a profit from a particular type of asset and so want to invest in, or otherwise gain exposure to, these assets. Alternatively, they might want to protect themselves from exposures they already have.
We get instructions from customers through the Sales desks. For example, a customer might be obliged to make a payment in a foreign currency in a few months' time and so might want to protect itself against exchange rate fluctuations. We determine the price at which the bank can offer products, such as options, to customers that can offer such protection. Customers will ask several banks for their prices for the product needed and will generally trade with the bank that offers them the best price.
When the customer knows exactly what product they want, the Sales desk will come straight to us for a price for that product. However, if the customer needs assistance to find the product they need, the Sales desk might get the Structuring team involved to design a product for them. Once the structure of the product has been decided, we will price it.
We also collaborate with Sales and Structuring to send new ideas to customers, either as a result of direct requests, or on a speculative basis if we're trying to generate new business.
What is a typical working day like for you?
We get in at around half-past seven and have a meeting to discuss what's happening in the market. Early in the morning, we also look at our risk management spreadsheets to assess what we call our "position", that is, the extent of the risks that we're exposed to as a result of the trades we've made, based on where the market is. Our position tells us what trades we need to do to ensure that the bank is not exposed to excessive risk. We also check that our profit or loss for the previous day is what we were expecting it to be the night before, and that there are no cash flows that haven't been accounted for, or incorrectly booked trades.
We then spend the rest of the day managing the risks resulting from the trades we've made with customers. As the market moves, we buy or sell foreign exchange and interest rate products to limit the bank's exposure to risk. At various times during the day, the Sales desk will send over requests for prices for particular products from customers, which we provide as quickly as possible because we're in competition with other banks. If the customer likes the price we quote, we'll enter into the trade with them.
How have your responsibilities changed since you started working at BNP Paribas?
When I first joined, I supported other traders by taking responsibility for tasks such as getting trades booked, and learnt about the bank's systems and the markets. It's very difficult to get involved in pricing or risk management when you first start. You have to acquire technical knowledge and a sense of what events are important for your market. You can't get this knowledge from textbooks and it takes a little while to pick up. But once you have it, you can play a more active role.
What do you enjoy about your job?
As a trader, you're running a business inside the bank which appeals to me. I like the combination I have of quantitative work and trading. I get involved in the technical side of pricing complex products but I also get the front-office experience when I'm under pressure to provide prices for customers. I'm often asked to analyse something complicated that I haven't seen before, and I enjoy having to get to a correct answer quickly.
What makes a good trader?
To be a trader you have to be calm under pressure and keep a good idea of what your position is and where prices should be. My work is also about understanding products in order to price them, so in my role you need to be very numerate. But mathematical skills are useless if you don't have intuition about how products behave - you can't rely on mathematical models to price products for you without any understanding of them.
Often people judge a trader by the profits they make, but at BNP Paribas we think that being a good trader is about discipline. It's about understanding your positions and your risks, and acting appropriately. If you've invested in something that isn't performing, you need to accept it and adjust your position. Similarly, if something you've invested in is increasing in value, you need to know when to sell it. When I'm quoting prices, this discipline means giving a price that's competitive, but not so aggressive that the bank would take on too much risk for not enough money.
What advice do you have for students interested in being a trader?
If you want to trade a particular product you should have some idea of what that product is and should have read a bit about it. You also need to have a grasp of what's going on in the markets.
Try to read up about the job, particularly industry publications and profiles of people who work in banking. Networking is very important.
But until you try working at a bank, there are lots of things that you won't know, including things about yourself - for example, to which department you are most suited. Internships allow you to find out about all the different parts of a bank. Furthermore, it's much easier for us to hire you if you've interned here because we will have experience of working with you.