There are three types of trader: proprietary, flow (market) and sales. Flow traders buy and sell products on the financial markets for the bank's clients. Products include securities and other assets such as futures, options and commodities. Proprietary traders trade on behalf of the bank itself.
Sales traders take instructions directly from clients, placing orders and advising them on market developments and new financial ventures. They are intermediaries between the client and the market maker. Their aim is to buy low and sell high. They do this by analysing economic data, technical analysis, experience, cross-asset correlations and identifying undervalued and overvalued prices.
Traders may specialise in one of the following areas:
- Fixed-interest bonds - loans issued by a government or company, which pay interest.
- Gilts - government bonds issued to raise public funds.
- Shares - also known as stocks or securities - from companies listed on the Stock Exchange or fund units.
- Futures and options - also known as derivatives - involves buying and selling commodities, securities and derivatives in secondary markets in order to make a profit through pricing differences.
- Foreign exchange (FX) markets - involves speculating on whether the price of a currency will rise or fall in order to make a profit through pricing differences. Many trades on the FX market are not in the actual currencies, but are traded as derivatives.
While there are many similarities in the work of flow and proprietary traders and those working in sales, their roles differ substantially. The main difference is risk - sales traders don't take risk while flow/proprietary traders take risks seeking reward.
Flow and proprietary traders focus on executing trades at the right price. Traders sit at workstations in a dealing room, tracking market movements. Markets can move rapidly and trading can be hectic. The role combines speaking with colleagues, making phone calls and making instant decisions.
Traders in this area must be alert and ready to make decisions based on the smallest movements in the market. They react to a change in parameters and constituents that is not already implied by the current market price.
The price should reflect the intrinsic value of the asset, which can change at any second for multiple reasons. Their decisions are informed by in-depth market reports provided by their firm's investment analysts and by sales traders, as well as streamed market news from agencies such as Bloomberg and Reuters .
Traders also use their own technical analysis. Much of the job is based on independent thinking. Independent thought, especially in proprietary trading, adds value to any team. During the first year the trainee performs relatively menial tasks such as data analysis and administrative duties before being trusted to be responsible for the firm's money.