In essence, an equity trader undertakes various transactions that involve equities and other financial products based on equities, also called equity derivatives. Basically, equities are stocks or shares of companies. Most often, the equity trader deals with stocks of publicly traded companies listed on a stock exchange. In some instances, however, he or she may undertake over-the-counter (OTC) transactions. These are normally negotiated and traded privately, that is without the involvement of a stock exchange.
Depending on the firm the equity trader works for, he or she may be responsible for the execution of buy and sell orders under the direction of a portfolio manager. If the trader does not work directly under a portfolio manager, then he or she may deal with external investors. These may include private individuals, pension funds, asset management firms, and others. Sometimes the traders will trade equities using the funds of the firm in which they are employed. Other times, equity traders are self-employed, and thus trade for themselves risking their own capital.
Firms that are housed with equity traders normally structure the trading department in a type of hierarchy. Commonly, from top to bottom, the positions will be as follows: senior trader, intermediate trader and junior trader. Accordingly, the most advanced equity trading will be handled by senior traders and sometimes intermediate traders. Junior traders will normally deal with relatively simple transactions. Moreover, the senior equity trader is generally tasked with designing trading strategies and ensuring subordinates carry trades according to plan.
Before making trades an equity trader may use either technical or fundamental analysis, or both. Technical analysis mainly involves reading charts from which the trader can deduce the next probable price moves. Conversely, fundamental analysis entails the assessment of a firm's underlying pros and cons, which will give the trader reasons to buy or sell its stock.
The most common equity derivatives that traders work with are instruments known as options. In a basic sense, these give the trader the option to buy or sell a specific stock at a stated price within a given time frame. Moreover, the trader may deal with OTC transactions, which he or she normally undertakes through a network of computers and telephones that are linked together. In such a network, the trader can deal with other traders to buy or sell equities.
To enter an equity trader career at the junior level, one usually needs about three years of experience in a trading position. The intermediate level normally requires about four to six years of experience. Finally, senior positions go to candidates who have a minimum of six years of experience under their belts.
Furthermore, to be eligible for most equity trader jobs, candidates are normally required to a have at least an undergraduate degree. These include degrees in mathematics, computer science, finance and economics. To work in a firm, an equity trader generally needs to have a license. In the US, for instance, an example of such a license is what is called the Series 55 License. Also, to climb the ladder in a firm, one normally needs to work hard as well as earn postgraduate degrees and sometimes sit exams for specific industry certifications.