The trader sits at the centre of the markets business. They make prices for clients, manage the resulting risk positions, and generate P&L both from client flow and from their own market views. The role is simultaneously operational — processing a continuous flow of client transactions — and analytical, requiring constant assessment of the risk book and market conditions.
Market-making
For most traders in a major bank, market-making is the core activity. When a client (via a salesperson) requests a price, the trader provides a two-way quote: a bid (the price at which the bank will buy) and an offer (the price at which the bank will sell). The difference is the bid-offer spread — the bank's revenue per unit of risk taken.
Pricing the spread requires balancing competitiveness (clients will shop competing quotes) against risk management (the spread must cover the risk of holding the position). In liquid markets — standard interest rate swaps, spot FX — spreads are very tight and market-making is highly automated. In illiquid or complex products — long-dated exotic options, bespoke structured products — spreads are wide and pricing requires manual analysis.
Risk management within limits
After executing a client trade, the trader has a risk position. If a client buys a 10-year IRS from the bank (the client pays fixed, receives floating), the bank is now long duration — it is receiving fixed. The trader must manage this exposure within defined risk limits: DV01 limits (maximum sensitivity to a 1bp rate move), notional limits, tenor limits, Greek limits for options.
Managing risk involves delta hedging (buying or selling liquid instruments to neutralise the primary risk), managing residuals (basis risk, convexity, credit risk), and deciding whether to warehouse risk (hold the position, betting it will improve) or exit it quickly (even at some cost) to reduce the book's risk.
The P&L mindset
Traders are measured primarily on P&L — the profit or loss generated by their book each day. P&L comes from: flow income (cumulative bid-offer spreads earned from client trades); mark-to-market moves on risk positions; and dividends, coupons, or funding income on held positions.
At the end of each day, Product Control independently calculates the trader's P&L and compares it to the trader's own estimate. Unexplained differences trigger immediate investigation. The P&L explanation process — breaking down why the book made or lost money — is a core part of the daily routine and a critical control.
The trading book and risk limits
Every trader operates within a defined risk mandate — a set of limits approved by senior management and the risk committee. Exceeding any limit requires immediate escalation and typically remediation. Risk limits are monitored in real time by the Market Risk function (second line), independently of the trader. The combination of defined limits, real-time monitoring, and independent P&L attribution creates the control environment around the trading desk.