There are two fundamental types of trader: proprietary traders and flow traders. Most traders are flow traders, who buy and sell financial products on behalf of an investment bank’s clients. Salespeople tell flow traders what their clients want to buy and sell. In turn, flow traders tell salespeople whether a particular trade is possible at a particular price. Flow traders can also help guide salespeople by keeping them informed of trading strategies and the direction a market is headed in.
Once a client agrees to buy an instrument, flow traders are obliged to make the trade at the price the client has agreed to. If they don’t act quickly and the price rises, they will have to sell the products to the client at a loss. On the other hand, if traders buy at a price lower than what was quoted to the client, the firm makes a profit.
A group of elite traders work on behalf of the bank. These are the proprietary traders. They can make huge profits – or considerable losses. It takes a stout heart and considerable self-confidence to be a successful proprietary trader, but if you’re a good one the rewards can be substantial.
