Are you having trouble deciding between a career as a Wall Street trader or stockbroker? Both involve buying and selling 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 how to become a trader or a broker.
Broker Or Trader: Which Career Is Right For You?
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. They deal with equities and bonds, as well as mutual funds, ETFs and other retail products as well as options for more sophisticated clients.
Traders 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 — stocks, debt, derivatives, commodities, and forex among others — and may specialize in one type of investment or asset class.
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.
Both brokers and traders look at analyst research to make recommendations to clients or portfolio managers to buy or sell securities. However, traders often do their own research and analysis, too. Despite the old-time stereotype of individual shouting offers and orders on a trading floor, most traders now spend their time on the phone or in front of computer screens, analyzing performance charts and polishing their trading strategies — since making a profit is often all in the timing.
Make no mistake, though, both brokers and traders tend to have high energy levels. They are usually proficient at multitasking and can cope with a fast-paced, high-pressure environment, especially between the hours of 9:30 a.m. and 4 p.m. Eastern Standard Time — when the markets are open.
Becoming a Wall Street Trader
Now that we’ve given you an overview, it’s time to look more specifically at what’s involved in becoming a Wall Street trader. (“Wall Street” is used in the figurative sense of the financial services industry. In the digital age, traders can and do work from anywhere.) Though we’ll focus on the trading profession, the path to becoming a broker — the background and education — is pretty much the same.
Traders were once more of a self-taught breed. Nowadays, a four-year college degree is a basic requirement — at least, if you want to work for a reputable financial institution or company. Most traders have degrees in math (especially accounting), finance, banking, economics or business. Not that liberal arts types can’t have successful careers as traders — any field that encourages research and analytic thinking develops useful skills. But make no mistake, number-crunching, finance, and business matters are a big part of the profession, so you need to be comfortable with them.
Some aspirants even move on to obtain an MBA where they learn about business, analysis, microeconomics and business planning. Others pursue a Master of Science in Finance. This route provides opportunities to learn about financial computing, advanced financial concepts, global investment, risk management as well as fixed income instruments such as bonds and T-bills.
Whatever the major, you should learn as much as you can about the financial markets. Make a regular habit of watching the financial channels or reading business publications like “The Wall Street Journal” or sites like this one.
Although some leap right in after college, it’s not uncommon for traders to have some other sort of work experience prior to entering the field. They may work in the finance department at a corporation. That’s even more true of brokers — given the high level of client interaction, any prior sales experience is highly valued.
The easiest way to get access to a Wall Street firm trading desk — the department where securities transactions take place — is to apply to an investment bank or brokerage. Begin with an entry-level position like an assistant to a stock analyst or trader and learn everything you can. Many financial firms offer internships — some paid, some not — and year-long training programs for straight-out-of-college types, especially for those on a track to get their trading license.
Requirements: Exams and Licensing
Unless you only want to trade for yourself, being a trader or a broker requires you to obtain 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. As of July, 2021, the exam lasts 105 minutes and consists of 50 questions. 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.
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. At the trading desk, you also get an opportunity to study companies up close while you get a feel for the markets. You’ll gradually identify a niche for yourself, be it in futures contracts, or equities or debt instruments.
However, before starting assignments on an actual trading floor, you must be screened by the FBI. Because Wall Street traders deal with sensitive financial matters like government securities, the bureau checks to see if you have a criminal past. That’s because if any information leaked, it can lead to damaging market speculation and economic espionage.
There are a variety of different career paths a stockbroker can take with some experience under the belt. Here are some options:
Advisors give financial advice to their clients and recommend financial investments and instruments to them so they can achieve their goals.
They analyze and study trends and data as they provide advisory services to others — mainly organizations.
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.
While the excitement of being on a trading floor or dealing with the high-stakes of the financial world may be alluring, let’s not forget an important facet of this career: the salary.
According to the U.S. Bureau of Labor Statistics (BLS), the median annual salary for securities, commodities and financial sales agents as of July, 2021 was $64,770. 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 2019 and 2029 is expected to be roughly 4%, as demand for financial services, investment banking, and retirement planning grow.
The Bottom Line
People want to become traders for various reasons. Money is a key one, but passion and fascination with finance and the movements of investment funds are key, too. If you like dealing with people as well, you might prefer a broker’s life. Whichever you prefer, be prepared to thrive in a fast-paced workplace – because money never sleeps.