The Sales and Trading Team Environment

Sales and trading is a symbiotic relationship. Salespeople need traders and traders need salespeople. Salespeople wouldn't be able to provide liquidity to customers without traders, and traders would be twiddling their thumbs all day long without customer orders to trade. This simple reality is sometimes lost during the course of the trading day, when traders routinely rip into salespeople, and salespeople shake their heads as they pick up the phone to give reports to their customers.

Let's take a closer look at why salespeople and traders often find themselves at odds. Let's say a trader just bought 500,000 shares of Precision Orthopedic Supplies (POS) from Fluke Investment Bank and makes a big spectacle about the trade, yelling at a salesperson something like, "That's not the right price, Dave, but you know that's what Fluke always does. These guys are trying to sandbag me again." Here, the trader is concerned that he has bought the stock at too high a price, albeit from an important customer. The salesperson may shoot back something like, "Come on, you know Joe over at Fluke. You had dinner with him last week! Play nice& you know this order grows." Here, the salesperson is telling the trader that doing the trade to keep the relationship with Fluke strong will pay off in the long run.

The trader is basically trying to protect himself from the wrath of his boss in the event that POS shares plummet immediately after he buys the shares from Fluke. The salesperson is trying to protect himself from the wrath of the boss by mentioning what a great account Fluke is and how important this account is to the success of the desk. If only one side says something, and the share price of POS goes on to hit the fan, the boss will harass the other side for a full accounting of his reckless actions: "Capital doesn't grow on trees. What kind of a stupid decision happened here?!" However, if both sides yell at each other, then at least it becomes a little harder for the boss to blame either. More often than not, at the end of a profitable trading day, you'll observe the salesperson and the trader have a discreet conversation during which they basically kiss and make up. The salesperson affirms the trader's superior price-making ability, and the trader affirms the salesperson's incredibly deep and invaluable customer relationships. It's a lovefest as long as everyone's making money. The main point here is that a trading desk is a lot like a circus. Experienced salespeople and traders recognize that a lot of what goes on is for show.

At the core of why salespeople and traders routinely find themselves at odds is that traders and salespeople have different measures of performance. Traders make money by buying low and selling high. For an investor in POS, this might mean buying at $20/share and six months later, selling at $26/share. For an institutional trader, whose time horizon is measured in seconds, this means buying at $20 and selling at $20.06/share. If the trader can make 6 cents on every share traded on a million share trade, he's making 6 million pennies, or $60,000. In contrast, the salesperson is compensated by commissions (called sales credits) on each transaction. Commissions are generated entirely through volume, so the typical salesperson values size of customer trade, rather than profitability of customer trade.

Of course, in the ideal situation, traders and salespeople work together to trade the maximum amount of volume for the most profit for the firm. But at times, salespeople and traders are at odds -- the vast majority of arguments that erupt throughout the trading day relate to whether you're motivated by spread or by sales credits. If salespeople and traders are not working well together, suspicion and mistrust can poison the symbiotic relationship between trader and salesperson. For example, a trader may find that he is continually "getting jammed" by a client, meaning the client (through the salesperson) has sold or bought stock to the trader at what turns out to be a bad price (this may happen, if, for example, the client happens to know something about soon-to-be released news about the company). Or, a salesperson may find that a trader is only offering poor prices or poor volumes to the client, even though the stock may be moving at large volumes or at better prices through other firms. The salesperson is stuck with giving "pathetic reports" about what the trader is willing to buy or sell to his client, even though the client can see that other firms are willing to do better (in terms of either price or volume).