A fixed income trader buys and sells debt securities such as bonds to generate a steady return for investors. They must be licensed and have a broad understanding of the investment arena. Some specialize in trading unconventional income securities such as derivatives.
A fixed income trader is an investment professional who specializes in trading securities that pay a fixed rate of return. Fixed income securities typically take the form of debt securities such as bonds, and a fixed income trader buys and sells these securities on behalf of an investment firm or individual investors. Successful income traders use a variety of securities to generate a steady return for investors over a long period of time. A fixed income trader receives commission related to sales based on the performance of purchased assets or trading volume.
Debt securities are sold by companies and governments to raise cash for short-term expenses. The debt issuer agrees to pay a certain rate of interest to the bondholder for a specified period of time. Bondholders can either hold the debt instrument to maturity or sell it in the secondary investment market. When interest rates are rising, bondholders often need to sell low-yield bonds at a discounted price, whereas when interest rates are falling, older bonds with higher yields are often sold at a premium. A fixed income trader tries to buy bonds at a discount and sell bonds at a premium in order to generate a profit.
Anyone working as a fixed income trader must be licensed to sell securities. Securities licensing takes place on a country-by-country basis, but traders licensed in one location are often able to obtain similar licenses elsewhere by transferring their credentials without having to pass the local licensing exam. Many fixed income traders enter the field after working as investment brokers for some time. Companies hiring traders generally prefer applicants to have a degree in finance or a related field, although degrees are not technically required.
A fixed income manager must have a broad understanding of the investment arena and the ability to make predictions about the future movement of debt securities. Many retirees invest heavily in fixed income funds and traders must ensure that people who invest in conservative fixed income funds are not exposed to undue levels of risk. Inflation can cause the purchasing power of people with fixed income to decrease over time; therefore, fixed-income traders must also try to balance risk with the need to outrun inflation.
Some fixed income traders specialize in trading unconventional income securities such as derivatives to try and increase income potential. Derivatives take many forms, but they function in a similar way to insurance contracts, with one party agreeing to insure the other against potential future losses in the value of a particular security or fund. A derivative has no stand-alone value, as its value is entirely based on the instrument to which it is linked and, as a result, these securities are riskier than debt instruments. Fixed income traders can only buy derivatives if their purchase is in line with the fund’s strategy or the wishes of individual investors.
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