David,
You are not being thick. I am sure I would sound equally unsure of myself about subjects relating to engineering.
The term 'Trader' is a generic one which really encompasses many different activities and professions. Allow me to clarify a few jobs which people may do and call themselves a 'trader':
1) The most popular on this forum: a person who trades financial markets for their own account for private gain. This is not a job of employment but one of self employment.
2) A person who makes a market (google search "market maker" for details) in an exchange traded asset or derivative (future, option etc). These people are usually in the employment of a firm and using their capital as margin for market making. In essence, the job involves continuously quoting a 2 way price (bid and ask) on an asset. Market makers can be screen traders or 'in the pit' in some markets.
3) selling over the counter or other structured, often exotic, derivatives to clients for an investment bank. This is heavily model driven and a good route for an engineer. Only the major investment banks offer such opportunities and such positions are well remunerated. These guys rarely, if ever, take any real risk, rather they 'build' risk profiles for their clients and earn a spread.
4) A trader for a hedge fund or prop book at an investment bank may take directional market positions in a similar way to the person listed in 1) above. These traders use either their client's or the banks funds to trade with. These jobs are hard to come by and require other professional experience and/or extensive training.
5) A person who writes trading algorithms which automate the trading process by generating buy and sell signals as a function of market activity as determined by the analysis of those markets by the traders statistical analysis. This requires a real time data feed through an API and fast access to markets through a dealable API so that the computer can deal direct to the market upon generation of a signal. These jobs are usually with hedge funds... this is my background.
The activities of the trader are a function of which of the above (and these are by no means exclusive, there are other trading jobs and sometimes the lines blur) they do. My career to date has involved writing systems to capture statistical anomalies in asset and inter-asset prices. A market maker will be constantly adjusting the prices he offers people to buy and sell at as a function of what other market participants are doing. A structured products guy at an investment bank may be doing what I describe above or dealing with client relationships.
There are also exotic option market makers who sell bespoke option products and manage a large book of risk. This is probably the most interesting investment banking job in my opinion. Be prepared for some masters / PhD maths here though. Lots of fun stuff.
The world of trading is vast and varied, I am barely scraping the surface - anyone who offers you a simple definition of what a 'trader' is or does is doing so in ignorance.
If you want a career in finance your best bet is either to get on a graduate program at an investment bank or to go and do a masters in a financial subject... both are a great education.
Unlike the old days and contrary to the desired belief of every ill educated person who fancies himself as a trader there are far more successful people in this business who are financially educated than who 'are just good'. Especially in investment banks / hedge funds.
If any of these terms require a definition, see google.
Hope this helps.
Good luck.
NQR
