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Old May 16th, 2009, 04:56 PM   #1
ezbentley
 
 
Join Date: Dec 2005
Posts: 105
The large institutions have separate job postings for traders and PMs. How exactly are their roles different? Don't PMs have to make trading decisions? And traders must manage the trades(portfolio) as well? What is the typical career path that leads to PM in money management or hedge funds?

I am looking at this from an individual trader point of view, since any individual trading his/her own account must also manage the portfolio. So how is this different from an institutional setting?

Thanks for any clarification.
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Old May 16th, 2009, 07:06 PM   #2
sjfan
 
 
Join Date: Dec 2005
Posts: 1,058
I'm with such a buy-side institution. The way it works is,

(1) PMs make the final calls on trades and allocations; In general, PMs own the portfolio's performance.
(2) Traders are responsible for executing the PMs' decisions by going out to the market and buy/sell accordingly. They also must make sure the trades get into the right accounts and so on; A good trader also provides feedback to the PM on the market colors and generate tactical trading ideas from what he's seeing.

You are also leaving out another critical category:

(3) Analysts. They do the deep due diligence. In some shops, they play more of a research role; in others, they are much closer to making trading calls or are actually making trading calls and acting like a junior pm.

The usual route to PM is going from analyst to taking on PM responsibility to PM. A trader may also go directly to PM or to analyst and to PM.

As to how you get into the business, you get in as either a trader or PM. You can get in from the bottom as either as a graduate from a decent place and being relative bright and get hired as a junior analyst.

The trading side is harder to go. You may have to start out as a backoffice monkey, then a trade assistant, and then a junior trader.

It's refreshing to hear a question about the actual finance business aside from the usual "I trade 1 ES contracts and therefore I know everything about running billion dollar portfolios" business. I'd be happy to answer any more questions.

Quote:
Quote from ezbentley:

The large institutions have separate job postings for traders and PMs. How exactly are their roles different? Don't PMs have to make trading decisions? And traders must manage the trades(portfolio) as well? What is the typical career path that leads to PM in money management or hedge funds?

I am looking at this from an individual trader point of view, since any individual trading his/her own account must also manage the portfolio. So how is this different from an institutional setting?

Thanks for any clarification.
    Quote
Old May 16th, 2009, 08:07 PM   #3
ezbentley
 
 
Join Date: Dec 2005
Posts: 105
Quote:
Quote from sjfan:
............
It's refreshing to hear a question about the actual finance business aside from the usual "I trade 1 ES contracts and therefore I know everything about running billion dollar portfolios" business. I'd be happy to answer any more questions. [/B]
Hi sjfan,

Thanks for offering an insider point of view. The difference between managing billion dollar hedge fund and the "trading" in the context of this forum is exactly what I am trying to understand.

With all due respect to those actually working in the industry, what I am about to say might be a gross misconception, but that's what I am trying to clarify.

From what you described, it seems that the role of trader in an institution is limited to mostly execution. In that sense, isn't it more difficult to succeed as an individual trader than as a trader in a large institution?

In this forum and in the context of general "trading" literature, some constant themes for successful trading include doing research to find an edge(analysis), design strategies to profit from the edge(trading), and proper money management and diversification(portfolio management). In an institution, the roles are specialized and tasks are spread among analysts, traders, and PMs. However, the individual trader has to do all three equally well by him/herself in order to become successful. That's why I have the impression(could be a misconception) that becoming a successful individual trader requires more skills than being an analyst/trader/PM in a large fund. Yet the people in the funds, even the mediocre ones, generally make much fatter paycheck than even the most successful individual traders. That does not seem to be "fair."

Please correct me if anyone disagrees with my impression. I am open to a more accurate understanding of the money management industry.

Thanks in advance,
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Old May 16th, 2009, 10:55 PM   #4
trend2009
 
 
Join Date: Jan 2009
Location: Washington DC
Posts: 338
sjfan was talking about PM and trader on the buy side. on wall street, there are also positions on the sell side. on the sell side, institutional trader is more like an individual trader, that is, he has to trade the market to make money. on the buy side, the trader is not really a trader, he is more like a broker for order flows.
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Old May 16th, 2009, 11:15 PM   #5
el pollo
 
 
Join Date: Nov 2008
Posts: 610
Quote:
Quote from trend2009:

sjfan was talking about PM and trader on the buy side. on wall street, there are also positions on the sell side. on the sell side, institutional trader is more like an individual trader, that is, he has to trade the market to make money. on the buy side, the trader is not really a trader, he is more like a broker for order flows.
Yes, and no, in a "small" hedge fund the trader is not only the eyes and ears to the sell side salesmen/salestraders, he also wears the hat as discretionary trader, and participates in the fruits of his labor, (P&L).

An institutional trader now a days on the sell side is an order taker and takes minimal capital risk. The Sales Trader shops the desk's order flow and research to the buy side trader and tries to add value and compete for very few commission dollars being given out.

The duties of "Trader" are not as clear cut as one might think, and varies from firm to firm.

I have worked on both sides of the fence.
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Old May 17th, 2009, 09:21 AM   #6
sjfan
 
 
Join Date: Dec 2005
Posts: 1,058
This is very right. Sell side is very different from the buy side. Sales traders are sort of a combination of market makers, dealers, and salesmmen; In a lot of cases, especially in OTC instruments, they get a bit of risk capital so they end up running a bit of prop trading by holding on to some inventory of what they are dealing.

Quote:
Quote from el pollo:

Yes, and no, in a "small" hedge fund the trader is not only the eyes and ears to the sell side salesmen/salestraders, he also wears the hat as discretionary trader, and participates in the fruits of his labor, (P&L).

An institutional trader now a days on the sell side is an order taker and takes minimal capital risk. The Sales Trader shops the desk's order flow and research to the buy side trader and tries to add value and compete for very few commission dollars being given out.

The duties of "Trader" are not as clear cut as one might think, and varies from firm to firm.

I have worked on both sides of the fence.
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