| Topic Name: |
What are the three different types of trading? |
| Message Name: |
Wow |
| Date Posted: |
12/14/2002 |
| In Reply To: |
There are many different types of trading...more than 3, sounds like a loaded question.
Could be
1) Equities
2) Currencies
3) Fixed income/debt
4) Commodities
5) Derivitaves on each
As for equities...
Prop trader takes risk with firm captial to generate profits
Agency Trader trades retail (usually) orders on an agency (commission) basis...no risk
Market Maker usually trades a list (telecom, software, semiconducter, etc) of related stocks...receives orderflow (from agency trader or Sales trader)...attempts to make low risk trades by capturing spread...usually not in the business of large risk or large positions.
Sales Trader/Block Trader-works with research salesperson to help move large blocks of stock from one institutional client to another. One client may want to buy a million shares of IBM. A sales trader will feed buy-side trader information about what is happening on the floor of the NYSE "Merrill, Goldman and PaineWebber are buyers, Bear Stearns and Thomas Wiesel are sellers" ...then the buy-side trader will give you additional information "Be more agressive (buy more stock...raise limits, 'I will' -"I will own them if a block comes up for show" etc)" or "wait until Merrill is done, and let the stock drift back to our limit" or "participate with the crowd" ...in some cases, a sales trader my be able to find a seller through his/her relationships with other clients. This is called a 'cross' and is benefitial to both clients, since large buyers or sellers often have an adverse impact on the market that is not good for them or the public. A sales trader will add value by being the 'eyes and ears' for the buy side trader, keeping the client informed on who else is buying or selling, any recent news that will affect the price of the stock, and using SOME trading knowledge to hopefully save the client money.
Program Trader: executes large baskets of stocks (10-1500 stocks at a time) usually several million dollar trades, all at the push of a button. A common strategy is for a hedge fund to buy all 500 stocks in the S&P while shorting the futures. It may be a portfolio rebalancing, the termination of a UIT, inflows from 401K money, etc.
Quant trader: use quantative strategies and statistical models...similar to prop trader. On the sell side, this usually done with derivatives or correlated equities to mitigate the risk from blind-bidding on baskets.
If your interview is with a hedge fund, there are several types of trading they do...
1) Market Neutral - usually an equal exposure on both long side and short side
2) Long/Short - just picking directions either long or short, for any number of reasons and taking large positions
3) Risk Arb - usually some kind of merger/acquisition strategy
4) Convertible Arb - buying stocks and shorting convertible corporate bonds...this may also be considered a market neutral strategy.
Hope this helps |
| Message: |
Thorough response and correct. Liten to Kwgossett
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