A fixed-income trader executes security trades on behalf of institutional and retail clients based on equity research on fixed-income investments. Banks, broker-dealers or similar institutions that attract investment clients are the typical organizations that hire fixed income traders.
The fixed-income trader draws from knowledge on specific markets to develop a trading strategy that responds to trends in the current market to enact trades on the sell side and the buy side. Employees working in this capacity are expected to develop and monitor assessments on portfolio risk by collaborating with analysts and portfolio managers. The reports that a fixed-income trader writes influence trading decisions.
Alternatively, a fixed-income trader may not be responsible for developing trading strategies for a firm equipped with a separate department that handles trading strategies. In this case, the fixed-income trader's duties might be more concerned with the execution of trades, maintenance of portfolios, and reporting on portfolio strengths and weaknesses to management. The trades executed may be for the primary or the secondary market.
Average Salary for Fixed-Income Traders
While a fixed-income trader's salary can vary widely depending on geographic location and the hiring firm, estimates place the average salary at $85,000 per year, with a low salary of $65,000 and a high salary of $200,000. Many firms offer a salary plus bonus arrangements.
The bonus arrangement is specific to the hiring company, with many companies offering bonuses based on a derivative of portfolio performance for institutional customers or other performance indicators.
Fixed-Income Traders and Product Knowledge
Mortgage-backed securities (MBSs) is another market that a fixed-income trader routinely researches to execute successful trades. While working in the MBS sector, the employee must have an understanding of how these securities draw from pools, use prepayments and respond to liquidity.
The fixed-income trader must also have a grasp on the future movements of prices caused by shifting trends of supply and demand. To be keenly attuned to the sector, a fixed-income trader would be expected to maintain or develop relationships with research analysts.
A fixed-income trader may also perform trades on asset-backed securities or commercial MBSs.
Fixed-Income Trading Experience and Education
An employer looking to fill a fixed-income trader position would seek a candidate with three to seven years of institutional experience at a trading firm, with many firms seeking five years of experience.
Education requirements would include a bachelor's or master's degree in finance, business administration, economics, mathematics, computer science or a related field. Some firms may be looking exclusively to hire candidates with finance degrees.
Fixed-Income Trading Skills
Previous work experience is required for the fixed-income trader. Candidates must have a strong knowledge of the securities industry, securities products and portfolio management theory. They must understand how fixed-income securities are affected by economic conditions such as a nation's interest rate, the health of its housing market and future changes in the economy that may affect fixed income instruments.
A fixed-income trader must have a high understanding of trading analytics and data analysis and have the ability to access the meaning and significance of a large amount of information quickly to promote good decision-making and efficiency.
Excellent communication skills and the ability to maintain and develop relationships are key for a fixed income trader. The trader is required to explain concepts to retail and institutional clients in a clear manner, so the client is not misled in the formation of portfolios or the functions of investment instruments within the portfolio. The trader is expected to work directly with clients to achieve their portfolio goals and maintain desired levels of fixed income from instruments used to generate periodic payments.
If a client is dissatisfied with the results of a portfolio, the fixed-income trader must be able to communicate the risks of investment and present ideas on solutions to clients' concerns. The fixed-income trader often provides quotes to clients and answers questions on a variety of topics including the functionality of products, why the value of bonds and equities increase or decrease, and the risk level of different fixed-income products in comparison to non-fixed income products.
Since the fixed-income trader often oversees multiple projects at once while completing additional research about a given sector or factors affecting investment products, they need to have a high attention to detail and the ability to multitask in a demanding, fast-paced environment. Given the precarious nature of the stock market, the trader must be able to make decisions based on logic and reason rather than emotions in stressful scenarios.
Knowledge of spreadsheets and how to navigate them is required, along with high computer literacy skills for the purpose of research. Knowledge of Microsoft Office is a commonly listed requirement for candidates seeking a position as a fixed-income trader.
Licensing for Fixed-Income Traders
Many firms require that candidates have Series 7 licenses to offer investment advice to clients. Some firms also want candidates to hold Series 63 licenses. If a firm does not require a candidate to hold a Series 63 license at the time of hiring, it may require the employee to obtain one within a specified timeframe.
Understanding the trading regulations and business practices regulations for those who hold a Series 7 is mandatory. A fixed-income security trader needs to act in compliance with these regulations for the protection of clients, the broker-dealer and the trader.
Job Outlook for Fixed-Income Traders
Investment in fixed-income products is on the rise as an aging workforce looks to retire. Fixed-income trader positions will continue to open as more retirees look to bonds over annuities as a means of supplementing and augmenting income streams to replace former employers. The baby boomer generation that is set to retire was the largest group of workers in the U.S. until 2016, when it was surpassed by the younger Millennial generation. Regardless, the baby boomer generation still accounts for a large portion of the workforce and as it nears retirement, demand for lower risk instruments such as bonds and other fixed-income products will likely continue driving the need for fixed-income traders.