What is the role of a trader on a buy-side execution desk?

A brief description

Tony, a trader on Goldman's outsourced trading desk, is a high-strung individual who thrives on the stress of handling numerous customer orders in volatile global markets.

A typical day:

Pre-Market Preparation: Before the market opens, Tony is already up and analyzing market-moving news, overnight events, and pre-market trading activity. He pays close attention to economic data releases, company announcements, and global events that could impact market sentiment.

Market Open: Executing the Trades- Once the market opens, Tony's focus shifts to executing trades. He maintains constant communication with brokers to negotiate prices, understand block order availability, and assess market conditions. Tony also updates the portfolio manager on trade execution progress and any challenges.

Throughout the Day: Trade Management and Problem Solving- Throughout the day, Tony keeps a close eye on market conditions, adjusting his strategies as needed to protect the best interests of the portfolio manager. He also identifies potential short-term market dislocations or arbitrage opportunities that could be exploited within the firm's risk appetite.

Tony speaks with Jill, the portfolio manager, several times a day whether there are live orders or not. 

The conversation could be about trading opportunities such as when ample trading quantity becomes available (e.g., from a broker advertised IOI) of a thinly-traded stock which Tony knows Jill had an interest in. Tony may also discuss with Jill seemingly unrelated news of geopolitical events that could affect the portfolio. For example, supply chain stories of mining cutbacks in lithium affecting electric vehicle manufacturers.

Periodically, they'll discuss asset trends such as how a specific investment holding is becoming overweight in its share of the portfolio and the cost/benefit of liquidating the holding or rebalancing the portfolio.

Asset managers with less impactful orders can have an arrangement where the portfolio manager routes an order to a prime broker's trading desk. Or as in Jane's case, use an execution partner such as Tony that has previously performed well.

Larger ("size") orders have a greater potential impact due to information leakage on market pricing and as such commands more of the trader's attention. The pressure on the price comes from the market being unsure of why a large quantity may be available. Information leakage occurs when a large order (large quantity to buy or sell by a single trader) is revealed through institutional merchandising systems (e.g., Bloomberg IOI, Directed FIX IOI) to other traders who take actions to prevent adverse trading situations. Faster completion time reduces the initial impact. Simple laws of supply and demand take hold.

About Traders

A trader's stress is a function of how much time is available to digest market events and to decide on an order attack profile relative to the amount of warning given that the order is coming and the time allotted for completion. 

It's also likely that the greater the value of the assets, the more intense the stress level associated with managing those assets. Traders can choose their stress level by working with a firm that has a desired value of assets under management (AUM)

Tony wanted to work with many portfolio managers in different markets, so he opted for an outsourced trading desk that has customers who are portfolio management firms. A larger asset manager has a similar organization. A buy-side firm could otherwise maintain a trading desk and employ execution traders to complete portfolio manager orders if there are a large number of position adjustments on a regular basis or portfolio rebalancing is complicated by compliance rules. Maintaining a trading desk has costs associated with operations that may warrant using an external desk.

Key Traits of a Successful Portfolio Execution Trader:

Insuring market intelligence gets relayed and orders get filled