Can someone explain to me exactly what a bond trader is and does?

Question

My friend today said his dad was a bond trader and said they make from 100,000 - 2 million a year. He also said they need to be good in math and with people and thats me. I was wondering what they do exactly and what college degree i would need to be one.

Answer 1

So there are corporate bonds and government bonds of varying types. People, more usually companies like banks, buy them. People, more usually still companies like banks, sell them. Someone takes orders to execute them by talking to others who take orders to execute them. They both make their bid and ask offers. Some orders are for market, so the sellers try to find the best price of the buyers, and vice versa. There are a wide variety of bonds and features, which the trader has to keep straight. You can't be trying to sell apples when the buyer wants oranges, so a treasury bond stripped of its interest payment coupons is not the same as a corporate bond, which simply pays an owner for the time the owner owns it. Bonds are usually sold on a basis of discount or premium to the maturity value. The bond selling at 95 percent that is two years to maturity is a different value than a bond that is selling at 95 percent but is twelve years to maturity. You need to be good at math to figure almost instantly the relative value differences.

Degrees of traders range from the normal, business, economics, and finance, to a wider range of mathematics to philosophy or music. The money depends on what value the brokerage finds in you. I read of one lady that was given a basic initiation and a few days later was pointed to the floor and told she had a billion dollars she was responsible for and then had to prove what she was worth. She passed, so they gave her nine billion more a few days later. Bond traders that do well will be given some nice bonuses. Bond traders that don't, do something else shortly afterwards. There can be a little stress to the work. One of my economics professors told that when he was a trader he asked for an options desk because the pace and math was easier.

Answer 2

A bond trader can speculatively trade for his own benefit, or others, otherwise firm will hire bond traders to buy and sell their own offerings. They can also trade among customer accounts or trade with house capital. In most cases they are handling dollar amounts in the hundreds of million or billions.

You need to master complex concepts of finance-- track multiple markets, indexes, and financial information simultaneously.

You need to know intuitively what any interest rate movement will do to the price, duration, and convexity of a bond. Most hybrid bonds have options embedded in them and you need to know how they react to all of the above mentioned items.

You need to process this information instantaneously and simultaneously.

You need a top-tier education, a connection in the business and a good deal of good luck to get a single chance at a decent Wall Street firm.

Once you have that chance, you can't make any mistakes. You can lose 10 lifetimes of income (or multiples of that) in about 30 seconds (or less). By the way if you fcck up, there will be three people stepping over your corpse to eagerly take your place. Even if you're doing well they'll be another three colleagues that will do everything in their power to undermine you.

Its a brutal, stressful existence.

There's a reason those guys get paid large.

No free lunch in life.

It takes a touch more than being "good in math and with people" to be successful.

I work on a small trading desk for a tiny regional firm and it's more intense than you can imagine. I'm not even a blip on the radar compared to the lowest of low Wall Street firm.

Answer 3

LOL a bond trader is like a real estate agent or stock broker only dealing with bonds either from a company or a city or the federal government. Their sort of like lawyers or an agent for an entertainer. Basically a company or the goverment puts up bonds to help raise money & in order to do so they ask someone else a bond trader to sell them for a commission so the trader becames a salesman & tries to get people or other companies to buy or sell the bonds just like stock. Companies buy & sell bonds just like they do stocks or even mortgages because people are always able to make money.

The way a bond works is the company or government says it needs to issue bonds for whatever reason maybe to buy a company or refinance debt to help with a turn around whatever. It's like going to the bank for a loan only on a larger scale & the people loaning the company money are investors not banks. So why do it. Well see the bond is for say $1 million dollars & 30 years at 8%. What that basically means is that the company wants a million dollars but 30 years to pay it back & will pay the holder of the bond or person that loaned the money 8% for the full 30 years. Well for some people thats great steady income for 30 years & in 30 years its a lot more money then you loaned. But for other people or because of other reason like inflantion people after a while sell the bonds to someone else looking for easy steady income & depending on the demand for the bond & how strong the company is how good they are paying & other factors the price for the bond will go up & down daily, monthly & yearly but who ever holds it still gets the 8% for the remaining time. After 30 years you can easily have made twice or more over what the bond was worth but at the same time inflantion affects it so a million dollars now wont be worth a million dollars 30 years from now. An example would be cars use to be $5,000 dollars for a brand new one Model T if you will but now $5,000 dollars wont get you an engine let alone a car. Another example is my parents bought a house 20 years ago for 230k sold it last year for 2 million yet in the area I live $230k wont get you land let alone a house. So again when the house they bought was built you got a good size lot & land for $230k but now because of market & time $230k doesn't have the same value that it did 20 years ago. So again people buy & sell bonds like stocks for quick money ups or downs since they are based on the economy but they also buy them for extra steady income over longer periods of time when they have money to tie up & dont want to do with a bank that pays only 4% & most bonds especially government ones are above being taxed & interest on most for sure is so again making 8% instead of 4% is great now just think if that extra 4% you dont have to pay taxes on it & that's what gets some people to hold on them for a long time. You're friends dad is basically a salesman who sales bonds or debt instead of furniture or used cars.....getting a commission on the deals whither someone sells or buys either way he gets a commission. I could sell you a bond making a commission then when you want to sell it you can give it back to me still paying a commission while I then turn around sell it to someone making commission off that person two. It doesnt always work like that but again basically he's a stock broker selling bonds or corporate debt instead of stocks or real estate. Think of bonds like you due when your state or city needs lots of money a long time to pay it off & may not have the best credit so they go to people & say here buy this bond for your own reasons because a bank won't give us a loan LOL. Ok so its not always because the company or city or state got bad credit it could just be that interest rates & economy makes it actually cheaper to issue a bond instead of going to a bank or whatever also they usually can get more money faster that way also without affecting their credit so much which again is why companies usually issue them as a way of getting money to refinance other debts that are coming due or at higher rates & especially if their looking to make a turn around. Also again companies that are really making money & even with a good solid foundation & cash flow will sometimes do it just to help them expand & cash in if you will. You friends father's income is great but not normally stable again its all commissioned based usually or at least a large part of it is just like stocks or a house so if people arent buying bonds & he aint selling or buying then he aint going to make as much & there are times when noone wants to touch them just like sometimes people buy them instead of stocks or whatever. If you can sell you can make great money no matter what you sell but its usually not steady income which is both the good & bad about sales....