Trading

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<p>For the past two years of university I've been gearing up for a finance major to work in investment banking. However, over time I've been more and more intrigued with the aspect of working in trading. Having just recently finished reading Liar's Poker I've become very interested in this profession.</p>

<p>Could someone shed some more light on the education requirements for a position in trading at a top firm(i.e.; do I need more math, stat, etc.?)</p>

<p>Also, how does one get a job as a trader? Do you just apply for it as you would an i-banking analyst position or is the route different? </p>

<p>Is there a hierarchy to trading like there is i-banking (analyst, associate, VP, MD…)?</p>

<p>Thanks for your opinions and answers.</p>

<p>EDIT: I forgot to do a thread search for similiar threads before posting. Sorry in advance.</p>

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<ol>
<li>Could someone shed some more light on the education requirements for a position in trading at a top firm(i.e.; do I need more math, stat, etc.?)</li>
</ol>

<p>-Depends. In general the trend is to hire kids with more quantitative backgrounds including math, engineering, etc, however for the most part its just to see if you can handle it. In reality, if you are a trader at a BB, 90% of the products won’t require math beyond 4 functions. Some derivatives, in particular Options and Structured Products, would be understood better with higher level mathematics, but to be honest, even then the background is not necessary… but they still like to see it, if that makes sense. If I were you I would take at least Multivariate Calculus and Applied Statistics/Econometrics, if you are just a finance major.</p>

<p>2.Also, how does one get a job as a trader? Do you just apply for it as you would an i-banking analyst position or is the route different?</p>

<p>-Exactly the same as IBD.</p>

<ol>
<li>Is there a hierarchy to trading like there is i-banking (analyst, associate, VP, MD…)?</li>
</ol>

<p>-Yes and no. The same titles exist, but the trading floor is much more flat than IBD. Let me explain what that means. Title does not carry the same weight on the trading floor, responsibility is much more important. I’ve seen an associate who is running an entire book over VPs and MDs, simply because he was that good. This is not usual of course, but it just goes to show that since in Trading results can be directly tied to an individual every day (ie through PNL), the value added is much clearer than in IBD. </p>

<p>Feel free to follow up with anything.</p>

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<p>C, </p>

<p>Thanks for the info. I wasn’t expecting such a detailed response. </p>

<p>Regarding education; I’ve been sitting on the thought of declaring a minor. Looks like mathematics may be the way to go. I imagine the upper echelon positions (proprietary trading desk) require something beyond the BS (MBA from HYPS, PhD in Math from MIT).</p>

<p>In comparison to i-banking, is trading more selective in new hires, less, the same?</p>

<p>Going back to hierarchy, you mention how associates can run a high position within the firm; what about the rookie traders? Are they the equivalent to i-banking analysts, doing busy work and pitch books all day (and night)? Whereas the MD’s of trading are the Lewis Ranieri’s and Andrew Hall’s.</p>

<p>Thanks again.</p>

<p>I hope I’m not bombarding you with too many questions.</p>

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<p>First thing to keep in mind is that prop trading is not necessarily considered “upper echelon.” Prop trading is not the same as trading as a market maker, and its hard to say one is necessarily better than the others (especially now, with most banks cutting a lot of prop or entirely out of the business). </p>

<p>Second thing is that higher education is largely irrelevant. No one cares about MBAs. MBAs are great for corporate finance, but entirely useless in trading. Conversely, PhDs often fit into the Quant role, not trading role. To be a successful trader, education beyond BS is not necessary. It’s not like IBD where its 2-3 years then MBA, PE, VC or HF.</p>

<p>Mathematics is an excellent subject and really teaches clear reasoning. At the upper levels it is essentially all proofs. Economics and Finance are great also. There is a good mix of Finance, Economics, Math, Engineering, etc. on the trading floor, but like I said hiring tends to be towards these majors as of late. I would recommend one or more of these majors if you are interested in trading from a recruiting perspective, but in the end do what you like.</p>

<p>I wouldn’t say trading is necessarily more selective than IBD, but I think they look more for intelligent, quantitative, yet well-balanced individuals. The candidates on both sides are very strong.</p>

<p>In some ways, the first year or so of a trading analyst will likely involve a lot of administrative work (like monitoring desks risk, booking trades, calculating PNL, etc.) while you learn the intricacies of the products and how to trade. You will likely be given a small book to manage at some point once your desk head feels you are ready. In reality the responsibility you get as an analyst is a function of a number of things.

  1. The culture of the firm
  2. The culture of the desk (how willing your boss is to give young people opportunities)
  3. How well you show your ability
  4. Luck… sometimes other traders leave and analysts need to fill the market making role</p>

<p>Don’t read into Liar’s Poker too much. There are definitely people like that, however most traders (including desk heads) are intelligent and reasonable people. They may expect a lot from you, but if you can impress them then its going to be a great situation for you.</p>

<p>No problem, happy to answer any questions you may have.</p>

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<p>You will definitely need a math/engineering background if you want to work at a quant fund (rentech, citadel, de shaw, etc.), whereas if you’re just doing flow trading at an ibank, you will learn most of the skills on the job. Being good with numbers does help though…</p>

<p>This is just my personal opinion, but I think it is harder to be really successful in trading than in banking (or PE). This is because a lot of trading depends on gut instinct and innate talent. This is what separates the best traders from the rest of the pack; there is a limit to how much you can make in trading by learning and working hard. People like Kenneth Griffin were running funds from their dorm room–they seem to be born with a natural instinct for trading. Unlike banking, trading is much more scalable which means if you don’t have that kind of instinct, you will not be making the kind of money you read about in Liar’s Poker</p>

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<p>Alright, this is putting the puzzle pieces together now, thanks. To be honest, my knowledge of trading is very dull when compared with what I know about i-banking, but this is helping. </p>

<p>I am interested to know about the top positions for traders. Let’s use someone like Andrew Hall for an example. What did he really do at Citi and what was his path (doesn’t have to be his but something similar to it) that led him to the top? And why do traders like him make so much more money than the company’s CEO? (I’m not asking this in hopes of emulating that career path but only out of sheer curiosity; someone who potentially earns $100mil in a year must have a very riveting story)</p>

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<p>There’s also a big difference between doing trading at a BB firm vs doing it at one of the top prop trading firms, like GETCO and Jump Trading. </p>

<p>You better have a engineering/math degree if you even want an interview at one of those places.</p>

<p>Really, the general trend in trading is that its becoming more and more quantitative. The old school way of the floor trading is disappearing and computers are stepping in to take their place. So the connection between technology and trading is becoming a bigger and bigger one… and accordingly the role of traders is becoming increasingly technical. </p>

<p>Unless you want to be in sales, I would be cautious of going for a traditional trading floor at a BB. They are basically just handing over cash to DE Shaw, GETCO , Jump, RenTech, etc. and will be all but gone once more products (i.e. more FI) goes on exchanges and is high frequency trading ready.</p>

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<p>Unless you yourself have done it before, then proceed with caution. By landslides it is by far thee most nerve-wrecking career on the planet. But if you can hack it, and this is a huge but, the reward is endless</p>

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<p>Without a jaw-dropping track record, that is, account summaries from personal cash or pervious employment, you’re going to need Phd level fulfillments. These days that means something along the lines of what some the guys in here wrote- Mathematical finance, Quantitative finance, or some other variation of this title as there are a few. Or there are many guys with Phds in physics, computer science, engineering, or some form of math that are hired by the snap of finger depending on where there coming from. Other than that there its safe to say there are no exceptions when it comes to this stuff. Like it or not, quantitative modeled software is engulfing the trading side of the industry. For any of the naysayers to that, which there are many, all you need is one example and if I’m not mistaken its already been mentioned in this thread, and that was RenTech, in what I believe is in reference to James Simon’s Renaissance Technologies. Note to self, places like Simon’s hire just about anyone but those with financial or business related backgrounds, provided they have ironclad quantitative programming ability. Lastly, if you’re willing to put in an amount of time somewhere in the ball park of 8 to 10 years for gaining that experience, you can rest assured that it will be the most rewarding of any other way that time could have been spent. One more thing forgotten here before the end, there is one exception to having one of the most advanced degrees that time, money, and human energy can offer- that is the case where a person goes Ivy League, or west coast equivalent straight out of prep school, or public school for that matter, and become one of the few recruited as interns, still only in hopes of a permanent position which for most will be from IBs like GS and the like. </p>

<p>Best of luck</p>