Traders play a very important role in the investment and financial industries. They are generally in charge of executing both buy and sell orders and transactions for themselves or, if they work for an investment firm, for their clients. Because they often deal with high volumes when they trade, they normally provide a great deal of the liquidity in the market.

These professionals work in a variety of areas of the industry. Day traders, swing traders, commodity traders, equity traders, and fixed income traders are some of the different styles of traders that exist. This article covers the basics of fixed income traders. Read on to find out more about what these traders do, their duties, the skills they require, as well as the outlook and salary.

What Does a Fixed Income Trader Do?

A fixed income trader is a financial professional who executes security trades on behalf of institutional and retail clients based on equity research relating to fixed income investments. They generally work for broker-dealers and banks. Similar institutions that attract investment clients also hire fixed income traders.

The fixed income trader draws from knowledge on specific markets to develop a trading strategy that responds to trends in the current market to enact trades on both the sell side and the buy side. They also work with different instruments such as loans and bonds. Employees are expected to develop and monitor assessments on portfolio risk by collaborating with analysts and portfolio managers. The reports that a fixed income trader writes influence trading decisions.

A fixed income trader may not be responsible for developing trading strategies for a firm equipped with a separate department that handles trading strategies. In this case, the trader’s duties may be tailored to dealing with the execution of trades, maintenance of portfolios, and reporting on portfolio strengths and weaknesses to management. The trades executed may be for the primary or the secondary market.

Product Knowledge

As the term implies, fixed income traders are required to have specific knowledge of certain fixed income instruments such as bonds or corporate bonds. These form the basis of the trader’s knowledge base. Traders also research mortgage-backed securities (MBSs) to execute successful trades. The employee must have an understanding of how these securities draw from pools, use prepayments, and respond to liquidity. The trader may also perform trades on asset-backed securities or commercial MBSs.

The fixed income trader must also have a grasp on the future movements of prices caused by shifting trends of supply and demand. To be keenly attuned to the sector, a fixed income trader is expected to maintain or develop relationships with research analysts.

Along with specific product knowledge, fixed income traders must also keep up to date on and monitor market trends, economic news and conditions in order to keep their clients informed about the direction of their investments.

Experience and Education

Fixed income traders generally have a bachelor’s or master’s degree in finance, business administration, economics, mathematics, computer science, or a related field. Some firms may be looking exclusively to hire candidates with finance degrees.

The average amount of experience most firms look for when filling a fixed income trader position is generally three to five years. Firms looking for a junior position may go lower, while the minimum amount of experience for a senior position tends to be about seven years.

Previous work experience is required for the fixed income trader. Candidates must have a strong knowledge of the securities industry, securities products, and portfolio management theory. They must understand how fixed-income securities are affected by economic conditions such as a nation’s interest rate, the health of its housing market, and future changes in the economy that may affect fixed income instruments.

Licensing

Many firms require that candidates have Series 7 licenses to offer clients investment advice. Some firms also want candidates to hold Series 63 licenses. If a firm does not require a candidate to hold a Series 63 license at the time of hiring, it may require the employee to obtain one within a specified timeframe.

Understanding the trading regulations and business practices regulations for those who hold a Series 7 is mandatory. A fixed-income security trader needs to act in compliance with these regulations for the protection of clients, the broker-dealer and the trader.

Skills

Along with experience, these professionals must have a great understanding of trading analytics and data analysis, as well as the ability to access the meaning and significance of a large amount of information quickly to promote good decision-making and efficiency.

Communication Skills

Because traders are required to explain concepts to retail and institutional clients in a clear manner, they need to have excellent communication skills and be able to maintain and develop relationships. The trader is expected to work directly with clients to achieve their portfolio goals and maintain desired levels of fixed income from instruments used to generate periodic payments.

If a client is dissatisfied with the results of a portfolio, this trader must be able to communicate the risks of investment and present ideas on solutions to clients’ concerns. The fixed income trader often provides quotes to clients and answers questions on a variety of topics including the functionality of products, why the value of bonds and equities increase or decrease, and the risk level of different fixed-income products in comparison to non-fixed income products.

Juggling Tasks

Since the fixed income trader often oversees multiple projects at once while completing additional research about a given sector or factors affecting investment products, they need to have a high attention to detail and the ability to multitask in a demanding, fast-paced environment. Given the precarious nature of the stock market, the trader must be able to make decisions based on logic and reason rather than emotions in stressful scenarios.

Technical Knowledge

Knowledge of spreadsheets and how to navigate them is required, along with high computer literacy skills for the purpose of research. Knowledge of Microsoft Office is a commonly listed requirement for candidates seeking a position as a fixed-income trader.

Salary

While a fixed income trader’s salary can vary widely depending on geographic location and the hiring firm, Glassdoor estimates place the average salary at $126,890 per year, with a low salary of $65,000 and a high salary of $303,000. Many firms offer a salary plus bonus arrangements, which is included in the aforementioned average salaries.

The bonus arrangement is specific to the hiring company. Many companies offer bonuses based on a derivative of portfolio performance for institutional customers or other performance indicators. According to Glassdoor, the average additional compensation package was about $19,306, which makes up roughly 15% of the average total compensation. These figures were current as of August 2022.

Job Outlook

Investment in fixed-income products is on the rise as an aging workforce looks to retire. Fixed income trader positions will continue to open as more retirees turn to bonds over annuities as a means of supplementing and augmenting income streams to replace former employers. The baby boomer generation that is set to retire was the largest group of workers in the U.S. until 2016, when it was surpassed by the younger millennial generation. Regardless, the baby boomer generation still accounts for a large portion of the workforce and as it nears retirement, demand for lower risk instruments such as bonds and other fixed income products will likely continue driving the need for fixed income traders.