Updated 16 October 2020
Equity trading involves the buying and selling of stocks. An equity or stock is a piece of ownership that a company sells to other companies and individuals to make money.
In this article, we will look at what an equity trader does, the skills and qualifications they need, and the kind of salaries and career progression they can expect.
An equity trader buys and sells stocks, and advises investors looking to trade in stocks.
They may carry out their transactions online, or they might work on the floor of a stock exchange.
An equity trader will monitor market trends, evaluate how individual equities are performing and calculate financial risk to decide when to buy and sell, or how to advise investors. They also spend time contacting potential new clients or forming professional relationships.
Equity trading desks will often be split into different trading roles; cash, derivatives and exotics.
This type of equity trading deals with normal company stocks.
Cash equity traders must have a strong market instinct, excellent mental arithmetic and be able to respond at speed to major events affecting the market.
Much of this area has been automated (see the Key Skills section) so may be better suited to traders with an interest in programming.
An equity derivative is a financial instrument that derives its value from the price movement of an underlying asset or assets.
Equity traders use derivatives to manage risk on long or short positions and to speculate on fluctuations in the value of the underlying asset.
Equity traders in this area must have good quantitative skills as well as market instincts, and will need to make calculations quickly.
These are the most complex products on an equities desk. There is no single or universally-accepted definition, but any derivative that has extra features in addition to a strike price (the set price at which the security can be bought or sold) and expiry date (the point when a position automatically closes) would generally be considered an exotic.
Equity traders working in exotics will create the structure and value them for clients, and then manage them on the client’s behalf.
The pricing of the products is key, so keen analytical and quantitative skills are crucial for this role.
It goes without saying that equity traders will need an interest in and thorough knowledge of the financial markets, along with the ability to monitor and interpret market trends.
They must be mathematically-minded, with strong analytical skills.
They also need to be able to think strategically and make decisions. And they should have an appetite for risk-taking but also understand how and when to manage risk.
In addition to this, equity traders need strong communication skills, as much of their work is likely to involve collaborating and liaising with colleagues and building relationships with clients.
IT skills also play an increasingly important role in an equity trader’s job.
As an equity trader, you will be working with portfolio accounting programs, trading platforms and other software, so you must be confident with this kind of technology.
As mentioned previously, much of trading is now automated, particularly on cash equities desks where the product is simpler and more liquid.
Goldman Sachs has reportedly automated 99% of its equity trading jobs since 2000, reducing its cash equities trading desk from a team of 600 to just two.
While more complex equity products, such as derivatives and exotics, are less likely to be automated, there is no doubt that technology will play an increasingly important part in this industry.
In light of this, programming knowledge would be a useful skill for any equity trader looking to future-proof their job and ensure a wide range of career options.
It could also be helpful to learn about data science and data mining (the process by which raw data is turned into useful information).
An MBA (Master of Business Administration) may also put you at an advantage.
Many employers will also expect their equity traders to be registered with the Financial Industry Regulatory Authority (FINRA) and to have passed one or more of its exams. For entry-level roles, the candidate may work towards this on the job.
Typically, an equity trader would take the Series 7 exam, which covers areas such as sales of corporate securities, investment company securities and variable annuities.
A FINRA member firm or self-regulatory organization (SRO) must sponsor you to sit this exam and the sponsoring firm will usually pay the examination fees.
You may also be required to take FINRA’s Series 63 exam, which assesses your understanding of industry regulations and how to protect clients’ interests, and the Series 57 exam, which measures the knowledge and abilities needed to trade securities.
Some employers will also favor applicants who hold the Chartered Financial Analyst (CFA) designation. This is a postgraduate certification for investment and financial professionals.
Equity trading is a highly competitive field so, aside from gaining official qualifications, you should look for ways to set yourself apart from the competition.
This will also be useful if you feel your educational qualifications are lacking for some reason.
You could gain experience by applying for internships and work placements, either through your school or college or via the relevant firm directly.
You could also consider joining a professional network, such as your local Security Traders Association (STA), which will offer you networking opportunities and the chance to meet equity traders and find out more about the role – and possibly secure work experience or job interviews.
Developing in-depth knowledge of a specific product will also help to set you apart, especially for entry-level roles.
For instance, you could study one particular exotic equity derivative, such as the compound option or the lookback option. This will give you something to discuss at interview and is likely to impress a potential employer.
And, as covered in the previous section, programming and data science qualifications and experience will also help you to stand out from the crowd and open up more opportunities within the field of equity trading.
Equity trading involves dealing with unpredictable and constantly changing financial markets, so there is no typical day for an equity trader and they must be prepared to respond quickly to rapidly evolving events and scenarios.
An equity trader would usually get into the office early, at around 6 or 6:30 a.m., and spend the first few hours of the day getting themselves up to date with the latest market news and how this may impact the stocks they are trading.
They will also catch up with colleagues to exchange news and information before the market opens at 9:30 a.m. Eastern time.
Once the market opens, an equity trader will spend much of the day on the phone, updating clients and making trades.
A trader will be working multiple orders at once for several different clients so they can’t afford to miss anything and will constantly be monitoring news and events.
The US stock market doesn’t pause for lunch so neither can the trader – sometimes there isn’t even time to go to the bathroom.
Throughout the day they will also be in ongoing dialogue with other traders, sharing information that may affect their trades.
The market closes at 4:30 p.m. but equity traders may need to work later in the office, and will regularly spend the evening entertaining clients at a restaurant, bar or sports game.
So, working as an equity trader can be exhausting, if exhilarating.
Like other trading jobs, equity traders can enjoy a financially rewarding career path, with well-structured opportunities for internal promotion.
A typical career would progress roughly as follows:
An intern is mostly an observing role. They would not usually talk to clients directly but would spend their time shadowing traders and salespeople.
Analysts start in a similar role to interns, spending much of their time assisting more senior traders. Over time, and depending on performance, they will gradually be given more direct client and trading responsibility.
As a trader moves up through the positions of associate, vice president and director, their day-to-day role may stay largely the same. However, they will manage larger trades and be granted more freedom in how they manage their positions.
They will also gain larger risk limits, enabling them to make more aggressive trades, and therefore potentially bigger wins. They may also be supported by an analyst or associate.
The move from analyst to associate is fairly standard and straightforward. However, from that point on, those who perform well can see themselves promoted quickly, possibly even skipping over some positions, while under-performers may find themselves holding onto the associate role for some time.
In 2018, the US Bureau of Labor Statistics reported a median salary of $64,120 for professionals in the category of Securities, Commodities and Financial Services Sales Agents, which includes equity traders.
Earnings for equity traders can vary greatly because they depend to a great extent on the performance of individual traders. However, an analyst can expect to earn somewhere in the region of $75k as their base salary.
This rises to around $100k base salary for an associate, $200k for a vice president, $250k for a director and around $350k for a managing director.
Bonuses will boost these figures significantly; however, as you move up the career ladder, you will receive less of your bonus in cash and more in stock or deferred compensation (such as in a pension or retirement plan).
There is less focus on exit options in this field than there is in investment banking, as the majority of equity traders tend to carry on trading.
Traders could also make the transition into a role in risk management or become a regulatory specialist.
Those deciding to leave equity trading may decide to do something completely different – they could put their IT knowledge to use by joining a tech company or even launch their own startup.
If you’ve got an analytical mind, a head for numbers, an appetite for risk and a lot of stamina, then equity trading may be the perfect career for you.
Equity trading is about analyzing and trading the stock of individual companies, so it is more suited to those with an interest in micro, rather than macro, analysis.
As the industry becomes increasingly automated it is worth developing your programming and IT skills so that you also have the option to work with the technology involved in automating trades.
Equity trading is fast-paced and competitive, so you will need to be hard-working and ambitious. But you will be rewarded with a healthy pay packet and the opportunity to rise quickly through the ranks.
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