What is a Head Trader?
A head trader manages a trading business’s positions, risk, and profitability. A registered securities firm’s chief trader oversees all traders and workers and may trade themselves. Head traders are responsible for maintaining regulatory and internal compliance for all employees involved in trading operations, not just traders. Some call chief traders “heads of trading.”
Understanding Head Traders
All head traders in securities operations with supervision or approval obligations must be registered principals, holding essential securities licenses and one of the following certifications:
- OP Series 4: Registered Options Principal Exam
- General Securities Sales Supervisor Exams, Series 9 and 10.
- General Securities Principal Exam—Sales Supervisor (GP)
- Series 24: GP General Securities Exam
- Municipal Fund Securities Limited Principal Exam Series 51
- Series 53: Municipal Securities Principal Exam
The chief trader’s duties determine the significant tests. Smaller organizations may have one or two head traders, while giant firms may have several, each controlling a market. A Series 53 license is required for municipal securities head traders. Futures and commodities trading require different permits. Registered options principals have Series 4 licenses.
Job Description: Head Trader
Head traders at wealth management businesses and money managers often report to chief investment and operating officers and play a crucial role in fulfilling and executing trading orders. The traders may also manage external brokers and custodians. Head traders should be among the firm’s most informed about markets, design architecture, and the environment. Head traders’ duties may include:
- We are building, analyzing, executing, and settling transactions.
- We are maintaining regulatory compliance and best execution policies.
- We design trade architecture, policies, processes, broker assessments, and trading records.
- I am supporting portfolio managers with rebalancing and asset allocation.
Evolution of Head Trader Career
Head traders now focus more on compliance and supervision than trading because of the continually changing rules. In Europe, MiFID II laws are changing head traders’ daily focus from trading to market structure and regulation changes rather than market updates. Becoming a head trader requires years of experience, yet the job may limit your time trading securities.
Head-Trader Order Execution Example
A mid-sized hedge fund’s chief trader receives a stock order from the portfolio manager. The instruction is to acquire 100,000 ABC shares “the best way.” The chief trader buys 50,000 shares in a dark pool to avoid affecting the stock price because ABC is a lightly traded stock that moves 150,000 shares a day. They may also check dealer interest in the ticker for a natural seller. This transaction involves cross-trading.
Because the chief trader knows how ABC stock moves, they know not to work the order in the machines because it is too huge. This information is crucial to execution and requires years of expertise.
Conclusion
- A head trader manages a trading business’s positions, risk, and profitability.
- Head traders report to chief investment officers or portfolio managers and work to execute trading orders.
- Head traders should be among the firm’s most informed about market trading architecture and environment.
