Are you having trouble deciding between a career as a Wall Street trader or stockbroker? Each involves 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.
What Do Brokers and Traders Do?
While both brokers and traders deal in securities, brokers are also sales agents, 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.
Brokers have direct contact with clients, and 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 (as the larger wire houses often do). They deal not only with equities and bonds, but 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 (or managers) at an investment firm. A trader might be assigned certain accounts and charged with creating an investment strategy that best suits (i.e., makes money for) 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, introducing themselves 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 an individual shouting offers and orders on a trading floor, most traders today spend their time on the phone or in front of their 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 (i.e., the background and education) is pretty much the same.
First, let’s discuss education. Once upon a time, traders were 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, numbers-crunching, finance and business matters are a big part of the profession, and you need to be comfortable with them. Some aspirants even move on to obtain an MBA.
Whatever your 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, well, 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 might work in a finance department at a corporation, for example. 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 (sometimes paid, sometimes not) and year-long training programs for straight-out-of-college types, especially for those on a track to get their trading license.
Requirements for Brokers and Traders: 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 (with a score of at least 70%) the Securities Trader Qualification Examination, now colloquially known as the Series 57 exam. Lasting nearly four hours, it consists of 125 questions, covering investment products, trading activities and reporting, professional conduct, regulatory requirements and maintaining records.
To be a broker, you must get a passing score (72% or higher) on the General Securities Registered Representative Examination – more commonly referred to as the Series 7 exam. The Series 7, a six-hour, 260-question exam (250 multiple choice, plus 10 others), tests 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 Agents 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, he or she is then a member of the stock exchange and has the ability to buy or sell stocks and other securities. (See: Succeeding at the Series 63 Exam.)
As of this writing, some changes are set for the series tests, effective October 2018. A single Securities Industry Essentials Exam (SIE)will replace 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 law school graduates who are studying 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 (criminal and financial), a fingerprint card, and to register with the SEC (unless you are conducting all of your business intrastate).
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 and 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, such as government securities, that if leaked, can lead to damaging market speculation and economic espionage, the bureau checks to see if you have a criminal past.
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.
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