If you’re having trouble deciding between a career as a Wall Street trader or stockbroker, you’ll want to fully understand the pros and cos of each.Both professions involve buying and selling
securities, but they have some differences to consider.In this article, we’ll look at how the job of a Wall Street trader compares to a stockbroker, so you can decide which is best for you.
– Traders generally work for larger firms and buy and sell securities on behalf of those firms.
– Unlike traders, brokers can also serve as sales agents on their own behalf.
– Brokers must manage a slate of regular individual customers and they have direct contact with clients.
What Do Brokers and Traders Do?
While both brokers and traders deal in securities, brokers are also sales agents, who act either on their own behalf or for a securities or brokerage firm.They are responsible for obtaining and maintaining a roster of regular individual customers, also known as retail customers and/or institutional customers.
Traders, on the other hand, tend to work for a large
investment management firm, an exchange or a bank, and they buy and sell securities on behalf of the assets managed by that firm.
Buying and Selling
Brokers have direct contact with clients.They buy and sell securities based on those clients’ wishes.Some may even act as financial planners for their clients, shaping a retirement plan, dealing with portfolio diversification, and advising on insurance or real estate investments if their firm offers such financial and
wealth management services.
Note
Brokers deal with equities and bonds, as well as mutual funds, ETFs, and other retail products.
They also deal with options for more sophisticated clients.
A broker often spends a great deal of time keeping clients informed of variations in stock prices.Additionally, brokers spend a fair portion of their days looking to expand their client bases.They do this by cold calling potential customers and showcasing their background and abilities, or holding public seminars on various investment topics.
Traders, on the other hand, tend to buy or sell securities based on the wishes of a
portfolio manager at an investment firm.A trader may be assigned certain accounts and charged with creating an investment strategy that best suits that client.Traders work in different markets like stocks, debt, derivatives, commodities, and forex among others.They may specialize in one type of investment or asset class.
Research
Both brokers and traders review analyst research to make recommendations to clients or portfolio managers to buy or sell securities.
However, traders often conduct
their own research and analysis, as well.
Most traders now spend their time on the phone or in front of computer screens analyzing performance charts and polishing their trading strategies, not on a busy trading floor as they once did.
Both brokers and traders are professions that typically require high energy levels, an ability to multitask.You must be able to cope with a fast-paced, high-pressure environment, especially during market hours of 9:30 a.m.to 4 p.m.
Eastern Standard Time.
Becoming a Trader or Broker
The path to becoming a trader or a broker is generally the same in terms of the background and education.Let’s look more specifically at what’s involved.
Education
A bachelor’s degree is a basic requirement if you want to work for a reputable financial institution or company.Most traders or brokers have degrees in math like accounting, finance, banking, economics or business.
Note
Liberal arts majors can potential have a successful career as traders, but a degree related to math and business increases your chances of getting hired.
Many brokers and traders then go on to get a
master of business administration (MBA) degree or a master of science in finance.Trader or broker may often have other work experience prior to entering the field, like working in the finance department at a corporation.
Many financial firms offer internships—some paid, some not—and year-long training programs for recent graduates, especially for those on a track to get their trading license.An internship can increase your chances of getting hired to a permanent position.
Requirements: Exams and Licensing
Being a trader or a broker requires you to get a
Financial Industry Regulatory Authority (FINRA) license to execute orders.
And to get a license, you need to take some of FINRA’s tests.
To be a trader, you must pass the Securities Trader Representative Examination with a score of at least 70.This exam is colloquially known as the Series 57 exam.It covers trading activity and maintaining books and records, trade reporting, and clearance and settlement.
To be a broker, you must get 72% or higher on the General Securities Representative Examination — more commonly referred to as the
Series 7 exam.This is a 225-minute, 125-question exam, testing the basics of investing and investment products as well as the rules and regulations of the Securities and Exchange Commission (SEC).
Many traders take this exam, too.
In addition to the Series 7 and 57, many states require a candidate to pass the Uniform Securities Agent State Law Examination, commonly referred to as the
Series 63 exam.
The Series 63 exam also tests various aspects of the stock market.When an individual has a license from FINRA, they have the ability to buy or sell stocks and other securities.
Changes to series tests
There have been some changes for the series tests as of October 2020.A single
Securities Industry Essentials Exam (SIE) replaced overlapping portions of the 7, the 57 and other series exams.
Candidates will then take an additional, smaller “top-off” exam related to the specific field they hope to enter.
The reforms will also make the exam-taking process more democratic.Currently, you need to be employed or “sponsored” by a FINRA-registered company to take one of the tests.
Sponsoring is often a part of financial firms’ training programs, with hiring conditional on a candidate qualifying for the license—similar to the way law firms engage graduates who study for the bar exam.The SIE removes this requirement, though you still have to be associated with a FINRA member firm to take the top-off exams.
Onto the Desk and the Floor
You have two years after passing an exam to register with FINRA to get your license.Before granting it, you will need a background check—both criminal and financial—a fingerprint card and you will need to register with the SEC.
After passing the exam(s) and attaining a license, you can request to be moved to any vacant trading desk.Here, you’ll learn how to develop trading strategies, direct trade executions and carry out trades on behalf of the investment bank or clients of the firm.
Traders often deal with sensitive financial matters like government securities, so you must be screened by the FBI before starting assignments.
At the trading desk, you can study companies and understand market movements.You can gradually identify a niche for yourself, such as in futures contracts, equities, or debt instruments.
Career Direction
There are a variety of different career paths you can take with some experience.Here are some options:
– Financial advisor: Advisors give financial advice to their clients and recommend financial investments and instruments to them so they can achieve their goals.
– Financial analyst: They analyze and study trends and data as they provide advisory services to others, mainly organizations.
– Investment banker: These bankers act as intermediaries between businesses and investors.
Businesses raise capital by selling securities, while investors buy securities to make a profit.Investment bankers provide advisory services to businesses and help them raise the capital they need.
How Much Do Brokers and Traders Make?
According to the
U.S.Bureau of Labor Statistics (BLS), the median annual salary for securities, commodities and financial sales agents was $67,480 for 2022.The BLS does not separate traders and brokers but rather generalizes the category as noted above.The outlook for the industry is positive—job growth between 2022 and 2032 is expected to be roughly 7% as demand for financial services, investment banking, and retirement planning grows.
What Is the SIE Exam For?
FINRA’s Securities Industries Essentials (SIE) exam will test your basic knowledge of the securities industry, focusing on products and terminology.
It will also test your understanding of regulations and prohibited practices.To prepare, you can enroll in a
reputable prep course.
What Disqualifies You on a FINRA Background Check?
Your background check can determine whether FINRA approves you to trade securities.Several factors in your background can disqualify you, including felony or misdemeanor charges, injunctions, or bars.
The Bottom Line
People want to become brokers or traders for various reasons.Money is a primary driver, but passion and interest in finance and the movements of investment funds are key, too.
If you like dealing with people, you might prefer a broker’s life.Whichever profession you choose, be prepared to work in a fast-paced workplace..
