What is the Fixed Income Trader’s role?

There are fixed-income traders on both the sell-side and buy-side of the street. The sell-side consists of investment dealers while the buy-side consists of mutual fund companies, pension funds, and hedge funds, etc., firms that invest client’s money in financial instruments typically purchased through the investment dealer.

The primary role of sell-side fixed-income traders is to act as market makers for the debt instrument or instruments they are responsible for within their institution. Essentially, the trader role and the market maker role are synonymous.

Institutional fixed-income market makers are financial institutions or corporations (or their representatives) who do business with other institutions by buying and selling debt instruments. The market maker holds the securities in inventory and quotes both a buy and a selling price. Rather than earning a sales commission, the market maker earns a profit from the bid-offer spread. That is, traders earn a profit for the firm on the difference between the price they are willing to pay for a security and the price at which they are willing to sell it.

Because market makers buy and sell debt instruments to maintain a constantly moving inventory, even in the absence of public buy or sell orders, they play a role in ensuring liquidity in the market. Proprietary fixed-income trading has become far less common as a separate role in the fixed-income department as firms seek more consistent earnings following the financial crisis of 2008. Although the fixed-income trader engages in some proprietary trading, this is more commonly the role of the equity trader.

When it does occur, proprietary trading consists of trading in fixed-income securities by using the institution’s funds, rather than the client’s funds. The trader uses various strategies to sell the securities at a higher price than the institution purchased them at, thus earning a profit for the institution. The fixed income trader often works with quantitative analysts to generate and implement trading strategies.

The buy-side fixed-income trader typically works for a portfolio manager and their main responsibility is to ensure the most effective execution of the portfolio manager’s trades. The fixed income market is a fast-paced one, requiring traders to think very quickly on their feet. As a result, fast-paced negotiation skills are a critical component of the trading roles on both the buy and sell sides.

What are the responsibilities of this role?

  • Keen understanding of market dynamics (Sell-side)
  • Generate and implement trading strategy ideas (Sell-side)
  • Execute client fixed income orders (Sell-side)
  • Provide liquidity to the fixed income market (Sell-side)
  • Maximize trading revenue (Sell-side)
  • Analyze trading results (Sell-side)
  • Adhere to risk management and compliance rules (Sell-side)
  • Provide the most effective execution of the portfolio manager’s desired trades (Buy-side)
  • Remain informed at all times of the portfolio manager’s detailed investment strategy (Buy-side)
  • Inform the fixed-income portfolio manager about bond market conditions and trends, and how these market conditions can affect the portfolio manager’s investment strategy (Buy-side)
  • Maintain good, professional relationships with fixed-income sales and trading staff of brokers/dealers with whom the firm does business (Buy-side)

What is the earning potential for this role?

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What are the required & recommended credentials and courses?

Below are the courses and credentials required and/or recommended for this career.

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