Are you having trouble deciding between a career as a stockbroker or a trader? Each career involves trading securities, but the nature of each varies greatly, and these variations could make all the difference in determining which career will suit you best. In this article, we'll look at these differences as well as the preparation required to pursue either career.
Brokers vs. Traders
While both brokers and traders purchase and sell securities, brokers are also sales agents, either on their own behalf or for a securities or brokerage firm. Traders, on the other hand, tend to work for a large investment management firm, and they buy and sell – or trade – securities on behalf of the assets managed by that firm.
Brokers tend to have direct contact with clients, either individual or institutional, and buy and sell securities based on those clients' wishes. Traders, on the other hand, tend to buy or sell securities based on the wishes of a portfolio manager (or managers) at an investment firm.
Finally, a broker is also a sales agent and is responsible for obtaining and maintaining a client roster.
Background of Brokers and Traders
Brokers and traders tend to have high energy levels and strong communication and negotiation skills. They are usually proficient at multi-tasking and must be able to cope with a fast-paced, high-pressure environment.
If you are considering a career as a broker or trader, you should learn as much as you can about the financial markets. Reading The Wall Street Journal or The Financial Times, or watching the financial news on CNBC, is a good way to start.
A business degree is not required to enter this field, but if you are an undergraduate student considering a career as a broker or trader, it is advisable to take classes in economics or finance as well as in business and sales if your college offers them. Popular majors for those that go on to become brokers and traders include: economics; finance; business; and math. Many have also studied physics, biology or electrical engineering. Even liberal arts graduates, such as those that major in history, English, political science and philosophy, have gone on to successful careers as brokers or traders. However, be advised that the road to success as a broker or trader will be longer and more difficult if you do not have any education in business or finance.
One important note for those considering this career is that many brokers and traders have additional work experience prior to entering the field. Particularly if you are seeking a career as a broker, any prior sales experience is highly valued. This is due to the sales component of the brokerage position.
Requirements for Brokers and Traders
Being a broker or a trader requires a Financial Industry Regulatory Authority (FINRA, formerly the NASD) license to execute orders to buy or sell securities. A FINRA license is obtained by achieving a passing score on the General Securities Registered Representative Examination – more commonly referred to as the Series 7 Exam. The Series 7 Exam tests the basics of investing as well as the rules and regulations of the Securities and Exchange Commission (SEC), an organization that governs the investment industry. When an individual has a license from FINRA, he or she is then a member of the stock exchange and has the ability to buy or sell stocks.
In addition to the General Securities Registered Representative Examination, many states require a candidate to pass the Uniform Securities Agents State Law Examination (commonly referred to as the Series 63 exam). The Series 63 exam also tests various aspects of the stock market.
Many brokerage firms and investment companies will accept candidates for a broker or trader position with the understanding that the candidate will take the Series 7 and other required exams necessary to obtain a license. The firm will often provide training and classes, and pay for the exam fees for such candidates. This is often called "sponsoring," which helps the candidate apprentice his or her way into the position.
A Day in the Life of a Broker or Trader
A broker spends a great deal of time keeping clients informed of variations in stock prices. Frequently, a client is interested in purchasing a particular security if it goes below a certain price, or in selling a company's stock if it goes above a certain price. As a result, a broker must watch the market with vigilance to monitor these fluctuations. Similarly, a trader may be instructed by a portfolio manager to buy or sell a stock at a certain price point.
Brokers and traders also look at analyst research to make recommendations to clients or portfolio managers to buy or sell securities. Additionally, brokers spend a fair portion of their days looking to expand their client bases. They tend to do this by cold calling potential clients, introducing themselves and showcasing their background and abilities. Brokers also often hold seminars on various investment topics. The brokers advertise these seminars locally with the hope of drawing a crowd that will include potential clients.
The Bottom Line
A day in the life of a broker or trader is an exciting and varied one. Many brokers or traders enjoy their position so much that they make it a life-long career. Other brokers or traders go on to different positions in the financial services industry such as an analyst or portfolio manager. If you like a fast-paced environment, enjoy reading financial publications and are looking for a life-long career, then a trader or broker career could be for you.