Would you like to be a wildly successful 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…( ) 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 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
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 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 , 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 , 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
• 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 adesk 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