What Does a Trader on Wall Street Do

A trader on Wall Street is responsible for buying and selling securities, such as stocks, bonds, and commodities, on behalf of their firm or clients.

Their main goal is to make a profit by taking calculated risks in the market. They use various financial instruments to speculate on price movements and capitalize on trends.

Traders work long hours, often over 12 hours a day, including evenings and weekends, to stay on top of market fluctuations. They must be highly focused and alert to make quick decisions in fast-paced trading environments.

A trader's day typically starts with reviewing market news, economic indicators, and company reports to stay informed about market conditions and potential trading opportunities.

A trader on Wall Street is someone who buys and sells securities using their own firm's money to make a profit.

Proprietary trading, for example, involves traders betting on the direction of a security's price or acting as both the buyer and seller to profit from the bid-offer spread.

Traders can be found at hedge funds, asset management firms, commodities companies, and small/independent trading firms.

In fact, proprietary trading used to exist at large banks before the 2008 financial crisis.

A trader's goal is to make a profit from their trades, whether it's by buying low and selling high or by profiting from the bid-offer spread.

Market-makers, a type of trader, offer to buy or sell securities at a specific price, even if they don't have a buyer or seller lined up.

For instance, if an institutional investor wants to sell 200,000 shares of a stock at $10.00 per share, a market-maker might offer to buy the entire block at $10.00 per share.

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There are three main types of proprietary trading firms: Churn and Burn, Slightly More Legitimate, and Legitimate Prop Trading Firms. These firms have different approaches to training and compensating traders.

Legitimate Prop Trading Firms, which we'll focus on, pay a base salary and benefits, give training, and place traders in a team that lets them grow and develop. Employees keep a smaller percentage of profits at these firms, around 10-30%.

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Traders at these firms have access to much better technology infrastructure, algorithms, and data than independent traders. They also have more capital to use, which can result in better rates with exchanges.

Here are the main jobs at prop trading firms:

Traders at prop firms can be divided into Discretionary Traders and Quantitative Traders, or a combination of both. The line between these jobs has become blurry, as Traders increasingly need to know programming to work with Researchers and Developers.

There are three main types of proprietary trading firms, but we'll focus on the third category – Legitimate Prop Trading Firms – which pay a base salary and benefits, give training, and place you in a team that lets you grow and develop.

These firms recruit directly from universities and poach experienced traders from other firms. Employees keep a much smaller percentage of the profits at these firms (~10-30%), but it's a sustainable career that isn't designed to exploit you.

Legitimate Prop Trading Firms pool resources, giving traders far more capital to use and collectively generating a much higher volume of trades. This can result in better rates with exchanges and access to much better technology infrastructure, algorithms, and data.

Here are the three main types of proprietary trading firms:

These firms offer a sustainable career path, unlike the other two categories that are designed to exploit traders.

Floor brokers are a crucial part of the trading process, acting as intermediaries between buyers and sellers on the trading floor.

They often follow orders from clients, but also use their best judgment to time trades for the best deal. For instance, timing a sale of 1,000 shares of a stock at $50 a share is a delicate task, especially when other sellers are also trying to sell.

Floor trading is an intense job that demands toughness and the ability to handle risk and stress.

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Trader roles can be divided into "Discretionary Trader" and "Quantitative Trader", although some firms combine them or offer only "Quantitative Trader" roles.

To become a Trader, you'll need to buy and sell securities and manage risk, either based on a model/software/automated approach or intuition and judgment – or a combination of both.

Some Trader roles require a strong understanding of programming to work with Researchers and Developers.

Here are some of the key Trader roles:

As you prepare for a trader job, it's essential to know what to expect during the interview process. Prop trading interviews will test your mental math, brain teaser, and probability skills, so be prepared to think on your feet.

You'll likely face a mix of math, brain teasers, and probability questions, with a focus on how you present yourself. If you claim experience or knowledge, be prepared to back it up with examples.

Behavioral questions will also come up, but they're more about handling stress and emergencies rather than leadership abilities.

Don't worry too much about accounting, corporate finance, valuation, or M&A/LBO modeling – these topics aren't typically relevant to prop trading.

You won't be asked to prove complex math theorems or solve advanced problems, so focus on the basics.

If you're applying for a Quant Trader role, you can expect programming questions and case studies as well.

Here's a rough idea of what to expect in terms of question types:

Trader roles at prop trading firms can be divided into "Discretionary Trader" and "Quantitative Trader" categories, although some firms combine them or only offer "Quantitative Trader" roles.

The line between Trader roles has become blurry, as Traders increasingly need to know programming to work with Researchers and Developers.

There are three main Trader roles: Trader, Quant Researcher, and Developer. These roles involve buying and selling securities, creating mathematical models for trading algorithms, and implementing those models into code.

Here are the three main Trader roles:

In addition to these roles, firms also have back office and support functions, including operations, finance, compliance, and HR.

Trader lifestyle can be intense and stressful, with average hours ranging from 50 to 12-14 hours per week, depending on the group, firm, and seniority. This is because prop trading often involves working across multiple markets and time zones.

The good news is that if you produce, your hours don't matter, and your compensation is based on your P&L (profit and loss). This means that you don't get a higher bonus for working longer hours, but rather for generating profits.

Here's a rough idea of what you can expect in terms of compensation:

Keep in mind that these figures are based on total compensation, which includes both base salary and bonuses. Bonuses can be significant, ranging from 50-100% of base salary, and can even be 5x higher in a good year.

The lifestyle of a trader is often unpredictable and demanding. You can expect to work around 50 hours a week, although this can vary depending on your group, firm, and level of seniority.

Your hours may not matter if you're producing, but the markets you trade and your geographic location can make a big difference. If you're covering both U.S. and European markets, you might have to work 12-14 hours a day due to the time difference.

A typical day starts with a morning meeting to discuss overnight happenings, followed by reading the news and starting to trade when your markets open. You'll be busiest at market open and close, with a lull in the middle of the day.

As a junior trader, you'll likely have to stay after the market closes to do wrap-up work, which can be tiring. The hours are intense and stressful, but if you're in a discretionary role, you'll have the freedom to do the buying and selling and discuss ideas with other traders.

Your day will be filled with a mix of trading, talking to other traders, and tweaking trading parameters if you're a Quant Trader. After the market closes, everyone will gather to discuss major trades, who might have been behind them, and overall market activity.

You can expect to start at a prop trading firm with a total compensation of between $100K and $200K USD, which includes a base salary slightly over $100K and bonuses of 50-100% of base salaries.

The good news is that if you perform well, your compensation can increase to the $200K – $500K range after your first year.

Senior Traders often earn between $500K and $1 million, and Partners can earn over $1 million per year. Most of these gains come from increased bonuses, as base salaries don't change that much as you move up.

There's a huge difference between good years and bad years – your total compensation might be ~5x higher in a good year. But until you reach the Partner level, your bonus is somewhat discretionary, and some groups are more generous than others.

Here's a rough breakdown of the compensation levels at a prop trading firm:

I stumbled into a Wall Street Trading floor having no idea what a Wall Street Trader actually does. I had no clue how trading works, and it was instantly apparent.

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The head of Rates and FX trading at the time used to be a big shot trader at a $100 billion dollar hedge fund. He was my bosses’ boss.

I didn’t get a job offer that day, but somehow got lucky twice and ended up back at JPMorgan as a full-time analyst. I spent the next 10 years learning the ins and outs of the trading floor.

The trading competition that started it all was hosted by JPMorgan.

To become a successful trader on Wall Street, you'll need to develop a strong educational foundation in finance, economics, and mathematics.

A trader's education typically begins with a bachelor's degree in a field such as finance, economics, or business.

Traders must also be proficient in technical analysis, which involves using charts and other tools to identify trends and patterns in the market.

Many traders also hold advanced degrees, such as an MBA or a Master's in Finance, which can provide a deeper understanding of financial markets and instruments.

A trader's ability to analyze complex data and make quick decisions is crucial to their success.

To develop this skill, traders often use software programs and tools, such as Bloomberg or Reuters, to analyze market data and stay up-to-date on market news.

Strong communication and interpersonal skills are also essential for traders, as they often work closely with colleagues and clients.

Traders must be able to clearly and effectively convey their ideas and opinions, both in writing and in person.

To be a successful trader on Wall Street, you need to have a solid methodology and a deep understanding of psychology. Stock speculators and investors typically use technical and fundamental analysis to make decisions, which can be aided by specialized software, personal computers, or smartphones.

Using Internet banking, traders can access the stock market and manage their positions. They may use stock screens to input specific parameters and receive a list of stocks that fit their requirements. However, many professional traders don't rely on technical indicators, and even critics argue about their validity.

A trader's mindset is crucial for success, as emotions like greed, fear, and regret can greatly impact decision-making. Greed can be beneficial in a bull market but destructive in a bear market, while fear can hold back a trader from taking necessary steps. To manage these emotions, traders can develop a discipline based on objective measures, such as trend direction, which can be determined using technical indicators like candlesticks and moving averages.

Here are some key factors to consider when it comes to trader psychology:

To access the stock market, stock speculators and investors typically need a stock broker, such as a bank or a brokerage firm, with an Internet connection to manage positions.

Using the Internet, specialized software, a personal computer, or a smartphone, stock speculators and investors make use of technical and fundamental analysis to help them make decisions.

Stock speculators and investors may use several information resources, some of which are strictly technical, to aid in their decision-making process.

They may use pivot points calculated from a previous day's trading to predict the buy and sell points of the current day's trading session, giving them a cue on where prices will head for the day.

Stock screens are also an added tool for the stock picker, allowing users to input specific parameters based on technical and/or fundamental conditions, returning a small group of stocks for further analysis among tens of thousands that fit the requirements requested.

Stock screens can be a valuable resource, but there is criticism on the validity of using technical indicators in analysis, and many professional stock speculators do not use them.

Many full-time stock speculators and stock investors have a formal education and training in fields such as economics, finance, mathematics, and computer science, which may be particularly relevant to this occupation.

Trading psychology is a crucial aspect of successful trading, as it helps us understand how our minds work and how we can manage our emotions to make better decisions.

The study of trading psychology reveals core human inclinations that can either help or hinder our trading success. Trading requires a different mindset than most other endeavors, and understanding this can help us develop a more effective approach.

Certain emotions like greed, fear, and regret play important roles in the trading process. Greed can be both beneficial and destructive, depending on how we use it. It's beneficial in a bull market, where we can accumulate wealth over time, but destructive in a bear market, where it can lead to significant losses.

Fear is the exact opposite of greed, holding us back from taking necessary steps in the trading process. Like greed, fear can be both destructive and useful, depending on the market situation. Regret is another emotion that can lead to poor trading decisions, causing us to jump into trades without proper consideration.

To manage these conflicting emotions, it's essential to develop a trading discipline that relies on objective measures, such as trend direction and technical indicators. These indicators can help us determine the direction of a stock's price action, whether it's trending up, down, or flat.

Here are some common technical indicators used to determine trend direction:

These indicators should be used in different time frames to get a comprehensive view of the market.

Discretionary traders still exist, contrary to the notion that all trading is becoming automated. Human traders are needed to tweak algorithmic parameters, manage risk and hedges, and find new opportunities.

A lot of trading is automated via software, but human traders are still required for tasks that require creativity and problem-solving. This includes finding new opportunities in the market.

The degree of automation varies based on the product. Equities are highly automated, while options use a mix of automated and manual trading.

Here's a breakdown of the different types of trading:

Different prop trading firms do things differently, with some acting more like software companies and others acting more like tech-supported trading firms.

The trader industry on Wall Street is a competitive field with a relatively stable outlook. The U.S. Bureau of Labor Statistics classifies traders as securities, commodities, and financial services sales agents.

Job growth for these professionals is estimated to be four percent between now and 2029, which is in line with the overall average for all occupations. This suggests that while there may be some fluctuations, the demand for traders is likely to remain steady.

The prevalence of online trading sites might limit growth for brokers of all types, as customers gain the ability to execute their own trades. This could potentially impact the number of jobs available for traders in the future.

The median Wall Street broker salary is $62,270, which is a decent income for those in the industry.