Why Sales & Trading Is Dead As We Knew It
Would you like to be a wildly successful bulge bracket (BB) trader having more money than you have time to spend? Connected to top investment bankers from shenanigans of Wall Street parties and a living testament to the high-fashion lifestyle! I know I thought like this when I was in junior college and to a lesser degree during my proprietary trading days but those are pipe dreams from yesterday’s Wall Street. If you’re trying to break into Sales & Trading (S&T) today, “…there’s no chance because the market for traders is zero,” according to Tom Sosnoff, CEO of Think or Swim. Does this mean that you should give up all together? Not at all, but you’re going to need more than an undergraduate business degree even from a top-tier college to landing a start, here’s the scoop…
First, I want to break-down S&T and its basic functions because one feeds the other, like clock-work and both are needed to run a department successfully.
• Sales connect buyer & sellers and execute orders from clients acting as middle-markets to generate revenue. These are specifically experienced people with a proven history of relationships & sales and usually networked their way in from adjacent fields.
• Traders use a firm’s capital to further profits. In the past, hires to major desks in credit, equity, and foreign exchange might be 1 or 2 whereas in investment banking it’s 2 to 5 times that. As of two year ago, the Dodd-Frank Wall Street Reform and Consumer Protection Act has caused a migration of trading activity to hedge funds and a subsequent decrease in the capital pool to < 3% of common equity along with expansive risk management requirements
Do you have unique experience or a network in putting the odds in your favor to break-in?
Essentially, S&T is a package deal but here is where the model changes. Going back to Tom Sosnoff,
The investment banking business isn’t the same as it was five or ten years ago, it means the game has changed.”
Further, he says that banking is a function of spreads and when margins are razor thin for sales they simply can’t afford them which effects traders but it’s not that Wall Street is not making money. The industry’s profitability is strong, so what’s the deal?
The nature of S&T is has changed for a number of reasons, a large one is evidenced in my previous article, Why High-Frequency Trading Is Not Breaking The Markets. Concisely, it started with electronic trading, then decimalization, and increased competition from discount brokers. After that, it was Wall Street hiring graduates of the sciences which gave rise to black boxes, the popularizing of algorithmic trading, and high-frequency traders who now make markets. Let’s also not forget the expansion of private markets such as credit default swaps and dark pools either as they have also cut into commissions and volumes.
I've also elaborated a bit on some other points of Sosnoff:
• Trading volume has dried up and become less selling-oriented from the brokers-commission system to more technology-oriented via algorithmic trading and outsourcing.
• Demand for Quantitative Analysts (QA) are off-the chart! People who can build financial technology solutions, program algorithms, and create strategies with complex modeling are highly sought and paid.
• Ultimately, markets will adapt, just like organic systems in their environment. Individual and retail investors will learn and adjust to these more complex strategies resulting in irreversible market structure changes.
Are you hesitant now about pursuing a career in S&T?
For today’s’ S&T prospective, you’ll need at the very least major course work in the mathematical sciences, familarity in programming, and a great financial network where you can get insider accessibility and influence to land that open position! Otherwise, you better be well-versed in graduate mathematical sciences, master more than one programming language, and a secondary knowledge in economics or finance to land a QA position at a Hedge Fund in Connecticut.
My advice is, experience talks. Work hard, save money that you can afford to lose, and put up the numbers! Statistically, it's likely you may not end up working at a BB trading desk after all but instead could end up working for a boutique, a proprietary firm like I did, as an entrepreneur, or just individually. Realistically, I think you have better odds with those options at being financially independent and hedge your bets about Wall Street trader fame and instead maxmize their more favorable odds, like a true trader!
What else would / are you pursuing to do versify your career bets?
Sources: Mergers & Inquisitions and Minyanville, June 2012
Comments
I agree with this post. I
I agree with this post. I guess I made the right choice when I decided to double major in mathematics and finance. I'll be a junior next year and I'm planning on applying to prop shops, bulge brackets, and hedge funds alike. Ideally, I'd like to experience work on a bulge bracket desk for at least a summer, but I know it's getting pretty hard to land those jobs. Any tips besides "network, network, network" would be appreciated (I'm already feverishly networking).
Great post. I agree with
Great post. I agree with this. Whenever a college student asks me for advice on breaking into trading, I tell them, "Take as many CS classes as possible, especially C++, C#, Java, data structure, algorithms."
The game has changed radically in the last 5 years or so, and this trend will only accelerate. Discretionary trading is virtually dead, and almost everything is now done by algos.
Brady4MVP: Great post. I
Great post. I agree with this. Whenever a college student asks me for advice on breaking into trading, I tell them, "Take as many CS classes as possible, especially C++, C#, Java, data structure, algorithms."
The game has changed radically in the last 5 years or so, and this trend will only accelerate. Discretionary trading is virtually dead, and almost everything is now done by algos.
At this point, I am proficient with Java, Matlab, and SQL. I've been considering picking up C++, since it is very similar to Java. Are there any other languages worth learning?
nontarget
Great post. I agree with this. Whenever a college student asks me for advice on breaking into trading, I tell them, "Take as many CS classes as possible, especially C++, C#, Java, data structure, algorithms."
The game has changed radically in the last 5 years or so, and this trend will only accelerate. Discretionary trading is virtually dead, and almost everything is now done by algos.
At this point, I am proficient with Java, Matlab, and SQL. I've been considering picking up C++, since it is very similar to Java. Are there any other languages worth learning?
Matlab is fine for basic quant research and data analysis, but you can't write algos with it. If you are interested in becoming a "real" quant, pick up C++ and C#. Also python is quite useful although secondary compared to the other languages. It's primarily used for scripting, but a lot of prop shops are starting to use it because it's easy to write and debug. My former fund used python almost exclusively for the algos and scripts. The disadvantage is that becuase it's an interpretive language, it's slower than C++/C#/Java, and it's a pain in the ass doing backtesting..
I understand how this would
I understand how this would at least force trading to move away from the bigger banks down the road, but how would this affect sales roles? And would programming be at all necessary to become a salesman?
I'm like one of them marriage counselors. Charge by the hour to tell some fool he needa bring some flowers home. Then charge another hour telling the bitch she oughta suck some cock every little once in a while. Keep a marriage strong like that. -Prop Joe
Yep, that's what we need,
Yep, that's what we need, more CS grads thinking that by proving a system works via backtesting that they will be able to earn a fortune for their bank...
great post, I want to break
great post, I want to break into trading after my MBA, unfortunately I don't really have an option to take any CS classes during my program, as it is already compacted into a single year. Luckily for me I will probably look for a job in Moscow which is not as crazy competitive as NY/LDN but still I would imagine I would want to know some of the programming languages mentioned here.
Brady4MVP: nontarget
Great post. I agree with this. Whenever a college student asks me for advice on breaking into trading, I tell them, "Take as many CS classes as possible, especially C++, C#, Java, data structure, algorithms."
The game has changed radically in the last 5 years or so, and this trend will only accelerate. Discretionary trading is virtually dead, and almost everything is now done by algos.
At this point, I am proficient with Java, Matlab, and SQL. I've been considering picking up C++, since it is very similar to Java. Are there any other languages worth learning?
Matlab is fine for basic quant research and data analysis, but you can't write algos with it. If you are interested in becoming a "real" quant, pick up C++ and C#. Also python is quite useful although secondary compared to the other languages. It's primarily used for scripting, but a lot of prop shops are starting to use it because it's easy to write and debug. My former fund used python almost exclusively for the algos and scripts. The disadvantage is that becuase it's an interpretive language, it's slower than C++/C#/Java, and it's a pain in the ass doing backtesting..
I'll be cautious here. The language knowledge is great and all, but this "demand for quants" is somewhat overrated. The reality is that the market is rather slow at the moment, and the average quant currently has either a PhD in hard science, or the equivalent. If you want to work in an algo shop, my suggestion is to quit finance, get a CS or Math or Physics (or Elect) grad degree.
I can't comment too much about sales - the E-sales teams tend to be expanding (I know about equities and FX). I honestly don't know how much Finance knowledge is needed for a sales role - if you're tall, look good, and express yourself well, you should be able to swing a sales role.
But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.
And Rhaegar died.
commods: Yep, that's what we
Yep, that's what we need, more CS grads thinking that by proving a system works via backtesting that they will be able to earn a fortune for their bank...
I hate victims who respect their executioners
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commods: Yep, that's what we
Yep, that's what we need, more CS grads thinking that by proving a system works via backtesting that they will be able to earn a fortune for their bank...
haha This.
Sure, being a CS wiz will only broaden your abilities, but lets not start thinking that the algo's are taking over. Spreads are definitely drying up, but the only guys getting jobs and the only names that you see on NI FINHIRE couldn't code "Hello World" in C++ or in VB for that matter. Its truly a relationship game. The HR rep and headhunter may get wet when you name every coding language under the sun, but the person who actually matters will only ask "Have you done this before and have you made money? Do I know you or someone else that can vouch for you?"
"Sounds to me like you guys a couple of bookies."
guys, which shops are still
guys, which shops are still doing discretionary trading? i would like to break into trading something quant-heavy, like FICC or exotics. i have a ph.d. in math so i am on the older side but consulting sucks, and i've wanted to trade for three years with no luck because despite my background i am actually not a strong coder (no OOP).
This is sad.
This is sad.
BillyRay05: commods: Yep,
Yep, that's what we need, more CS grads thinking that by proving a system works via backtesting that they will be able to earn a fortune for their bank...
haha This.
Sure, being a CS wiz will only broaden your abilities, but lets not start thinking that the algo's are taking over. Spreads are definitely drying up, but the only guys getting jobs and the only names that you see on NI FINHIRE couldn't code "Hello World" in C++ or in VB for that matter. Its truly a relationship game. The HR rep and headhunter may get wet when you name every coding language under the sun, but the person who actually matters will only ask "Have you done this before and have you made money? Do I know you or someone else that can vouch for you?"
So what is the advice for an UG, have a connection inside the firm and some trading experience?
Thus focusing less on the coding and systems side.
TheMilkman: BillyRay05: c
Yep, that's what we need, more CS grads thinking that by proving a system works via backtesting that they will be able to earn a fortune for their bank...
haha This.
Sure, being a CS wiz will only broaden your abilities, but lets not start thinking that the algo's are taking over. Spreads are definitely drying up, but the only guys getting jobs and the only names that you see on NI FINHIRE couldn't code "Hello World" in C++ or in VB for that matter. Its truly a relationship game. The HR rep and headhunter may get wet when you name every coding language under the sun, but the person who actually matters will only ask "Have you done this before and have you made money? Do I know you or someone else that can vouch for you?"
So what is the advice for an UG, have a connection inside the firm and some trading experience?
Thus focusing less on the coding and systems side.
I would advise on getting good grades and networking more than anything.
Look, if you are a CS major who is realizing late in the game that he wants to trade, than thats fine. You can go get your masters in more CS or MFE and be golden. You will be able to trade at all the quant shops, hft, and also trade any vanilla product. However, most people on here are not at that level. They are business ug's trying to basically take on coding like a hobby and not like a lifestyle/personality (such as most CS kids). So if you 'learn' a couple of languages and go interview at one of these shops, they A.) probably will highly doubt your ability B.) Even if you are good, they will definitely have negative thoughts about you bc while you were getting wasted on thursday night belting journey songs, they were in the lab pounding out some code or whatever.
You don't need all those langauges to trade >75% of all the products out there. So instead of wasting time on something that is minor at best, I would spend your time networking and getting stellar grades. Learn the languages after you get the job or network....
"Sounds to me like you guys a couple of bookies."
Proposition Joe: I understand
I understand how this would at least force trading to move away from the bigger banks down the road, but how would this affect sales roles? And would programming be at all necessary to become a salesman?
To answer your question, when a trader wants to execute a trade, it's the salesman that makes it happen. I'm not talking about round lots either but block trades (10K+ shares) which are executed with institutional buyers (IB). Sure, a routing system could execute the trade at an average price but they're already long-standing close relationships with IB that sales people continue profitable relationships with in turn for their commissions and the trader’s profit.
However, the problem with these salesmen (i.e. brokers) is that their ability to make-markets is being diminished by high frequency trading employing these same strategies which has driven narrower spreads and reduced volumes. This is the same technology that employs the strategies of former desks and begun the fundamental shift from securities traders to quantitative analysts. Subsequently, the need for trade execution by a salesman diminishes as the algorithm can better ascribe this more efficiently with less overhead. As per my current state of knowledge, I think in the near future the increasing rate of quantification of trading methodology is eventually going to usurp sales all together...as it relates to the trading business.
In my opinion, programming would not be at all useful if you’re going to pursue a sales position. It doesn't employ communication or marketing skills which are keys to building successful relationships, instead focus on communications / marketing / persuasion tactics. These are matters that technology cannot do, human relationships, and that’s fundamentally what drives markets. If you’re good at it, you’ll always have a job, even if not in finance as the industry continues to change these are very marketable skills.
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GMngmt: Proposition Joe: I
I'm like one of them marriage counselors. Charge by the hour to tell some fool he needa bring some flowers home. Then charge another hour telling the bitch she oughta suck some cock every little once in a while. Keep a marriage strong like that. -Prop Joe
Anomanderis: Brady4MVP: n
leveRAGE.: Anomanderis: B