Desk Trader

What Is a Desk Trader?

The term desk trader refers to a financial industry professional who buys and sells assets such as stocks or bonds on behalf of clients. Desk traders work for financial institutions but are not permitted to make any trades on behalf of the companies that employ them. These individuals are front-office professionals who work with investment analysts. As such, they can make recommendations to their clients based on this research. They are required to be registered with relevant securities regulators, including the Securities & Exchange Commission (SEC).

Key Takeaways

  • A desk trader is a financial professional who processes buy and sell orders for clients.
  • These professionals work for but do not carry out trades for financial institutions, such as banks and brokerage houses.
  • They seek opportunities for their clients by analyzing financial and economic data.
  • Desk traders may also make buy and sell recommendations to their clients based on market research.
  • A college degree, experience, and a license are required before anyone can become a desk trader.

Understanding the Desk Trader

The investment world is full of professionals who have different roles and qualifications. Their positions in the market may fit various niches of the market, whether that means doing market research, financial analysis, working with clients, or conducting trades. One of these categories of financial professionals is the desk trader.

Desk traders work for financial institutions, such as banks, brokerage firms, and investment houses. They are not authorized to make trades on behalf of their employers. Instead, they take orders and make trades for their clients. That means if you have ever telephoned a brokerage firm to order to buy shares of stock, you probably talked to a desk trader who took the order and sent it to the market. Most also have their own lists of regular clients.

These traders look for market opportunities by analyzing financial and economic data. They sometimes have to make extremely fast decisions on when to buy and sell stocks or bonds based on current price fluctuations in the market. While they may take orders from their clients, they are also able to make purchase and sale recommendations for their clients. That's because they work with financial analysts and are involved in conducting investment research.

Desk traders aim to make significant profits for their clients with minimal risk. They may specialize in shares, bonds, options, or the foreign exchange (forex) currency markets.

Special Considerations

There are some general qualifications that must be met before individuals can become desk traders. A college degree in finance, mathematics, business, accounting, economics, or another related field is preferred.

Not only is education important, but some experience is also a requirement before becoming a desk trader. Many desk traders move up from different junior positions within the financial industry before they're hired. This allows them to develop insight into certain market segments, such as stocks and bonds.

Because they must be registered with the SEC, desk traders must be licensed before they can work with clients. Licensing requires testing, which is done with the appropriate issuing regulatory body.

Desk Trader vs. Investor

Desk traders are professionals employed in the investment industry. A regular trader, on the other hand, generally tends to be an individual investor. The word trader encompasses any investor who aims for short-term gains rather than long-range goals.

A trader analyzes the market on a minute-to-minute basis, looking for opportunities in price fluctuations. Traders focus on market trends and emotional reactions.

An investor analyzes company fundamentals in order to identify stocks that have the potential for long-term growth. Investors focus on the stocks of well-run companies that are gaining market share.

Other Types of Traders

Desk traders aren't the only types of traders that exist in the investment world. In fact, there are many types of traders that serve a variety of functions. Professional or not, they tend to stick to the niches of the market with which they are most comfortable. The following is a list of some of the other most common types of traders you may encounter:

  • Fixed-Income Trader: A fixed-income trader buys and sells corporate and government bonds and other debt instruments such as U.S. Treasuries and short-term fixed-rate notes. Their clients may be retail or institutional investors. Fixed-income traders work for banks or broker-dealers.
  • Noise Trader: A noise trader makes short-term buy-and-sell decisions based on current economic trends and the news of the day. These traders do not use fundamental analysis to create a trading strategy. They react in the moment, typically with unproven strategies. Noise traders are generally frowned upon by others in the industry, and get much of the blame for spikes in trading volume.
  • Sentiment Trader: Sentiment traders are similar to noise traders, but their attitudes are different. Noise traders want to latch onto the trends. Sentiment traders want to exploit the trends. A sentiment trader tries to identify stocks that are currently moving with the market and buy them just long enough to make a quick profit. Unlike a noise trader, a sentiment trader will use some fundamental analysis to aid in decision-making.
  • Arbitrage Trader: An arbitrage trader simultaneously buys and sells related assets in two or more markets in order to profit from the momentary differences in their prices. This type of trading has become increasingly difficult, as technological advances have made it more difficult to find and exploit these ephemeral price differences.
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