Bond vs equity trading

Hi

Lately, I've become kind of interested in bond markets and trading bonds (mainly government bonds). Is this harder to break into than equity trading? Yes, I know it's never easy, but how does it differ overall in terms of pay, hours etc?

The reason for my interest in bond trading is that I'm really good at macroeconomics but don't really feel for doing research, and I'm also good at finance. It seems bond trading combines the areas (though if I'm wrong, please correct me).

Do you typically need to work somewhere else before, or can you go into bond trading directly out of college? I'm in Europe btw.

/John

 

It seems to me you haven't done much research dude, you should use google and this forum's search... Anyway, I'll try to explain the best I can. What do you mean by trading bonds? Sell-side or buy side?

In the sell side, usually trading groups in IB are divided between equities and FICC. If you don't know, FICC means Fixed Income, currency and commodities. I'm assuming you know what currency and commodities mean, fixed income basically means debt, which includes bonds and other things like mortgage backed securities (which I do hope you've heard of) and of course, all the derivatives of those.

Yes, you can get into a FICC group right out of college, you can even get in as a SA. Like I tried to explain, its a division of S&T "parallel" (i can't find a better word) to equities. Usually, as a SA you'll do a rotation between equities and FICC (one desk each typically) or get into either one of those, the latter also applies to FT. You'll get to choose usually after accepting an offer, which kind of sucks, or maybe you'll get split among equities/ER/FICC, but you won't get to choose your desk until later, so if you want to do bonds you might get stuck with commodities for example. And you don't choose either, you get asked your preferences and then the bank decides considering background, desks needs, other new analysts choices, etc... FICC is usually harder because all new hires tend to want FICC, so someone needs to get fucked and moved to equities.

Yes, FICC is more macro than equities, although depending on your role you might only be a transaction trader so you won't do any analysis at all.

 

talebi, why so angry? Just ignore posts you don't like, or your high blood pressure will come back and haunt you one day.

Maximus Decimus, I think the post I wrote made me look more uninformed than I am (although I am by no means an expert - then I wouldn't be asking here). Didn't want to write too much because people in general neither read nor reply to long posts. I have heard something about rotating between desks before now when I think about it. Commodities/currencies seem kind of fun to work with too (and they are also affected by macroeconomic events so my knowledge of macro won't be wasted) so no problem there. But ending up as a transaction trader seems like a much less happy ending. Should I go for a Finance MSc or Economics? And are pay rates about the same all over S&T?

I wish this forum could get a decent search function. /John

 

Dude, there's nothing guaranteed in your life. Specially not in finance. If you really like it, move your ass, get as many internships as you can, network hard and become one of the top FT hires so you won't get placed as a transaction trader. I don't think a Masters is going top help you at all. That might help you if you have already graduated and have an unrelated major and no finance internships. Although it wouldn't hurt to try anyway. For entrance positions yes, pay are pretty much the same, differences are probably small. On the long term, if you're a prop trader sky's the limit, but you can get fired or no bonus if you lose money, it's much more variable than transaction or sales. There's a good article about Fixed Income in M&I, and a couple of them about trading you might want to read. As for the search function, search in google and tipe wso at the end.

 

10yr US Treasury futures currently give you 66x leverage (1 contract controls 100k of underlying 10yr notes, and only requires $1500 of margin $$ in your futures account)...so a move from 129-->128 (1 handle = 1%) = a 60% move in a fully leveraged position. That is f#$cking huge.

For perspective, 1 ES contract (S&P 500 futures contract) controls 50x the index...so approx 100k of the index with the S&P at 2000...but requires 5k of margin $$ in your trading account, so only gives you 20x leverage. A 1% move in the S&P 500 therefore moves your fully levered ES P&L by only 20%.

Of course, equities are more volatile that bonds (usually)...so the extra leverage in treasuries makes sense.

Over the past week, the S&P has moved ~10%, and 10yr notes have moved ~ 2.5% (both peak to trough) On a fully leveraged basis, ES P&L has moved more than us treasury P&L...but only because China has been selling massive amounts of US Treasuries to raise cash for its massive stimulus program.

i would HIGHLY suggest you open a retirement account at TD Ameritrade, and use thinkorswim to watch the futures markets (its free) just to get an idea of how the markets move. At the least, try paper trading (not using real $$...its pretend, but for a trader its the best game you can play).

anybody remotely interested in trading should already have done this, or i would highly doubt their actual interest in trading in the first place.

 

i'm just referring to the exchange required initial margin. Yes, some brokers will give you additional leverage...but you would have to be crazy to use it. The CME margin requirements already provide "too much" leverage if you don't know what you are doing...and even if you do...they are still higher than you should ever need.

I usually only use a fraction of the CME / CBOT initial margin in my own trading...if you are smart, you will almost never hit the margin limits...thus avoiding the potential for a Margin Call.

 
Best Response

In "Liar's Poker" bond traders made more money than others because Salomon Brothers had a world renowned bond trading unit which generated greater revenues than it's equity unit and thus compensated it's bond traders accordingly. At other banks however, the opposite was true and it is the same today, some banks will pay traders more for trading certain products because they are the bank's "niche" or are temporarily more profitable given the current macroeconomic environment (equity traders make more in bull markets, govt bond traders make more in bear markets, etc.) You can't just generalize and say that under all circumstances bond traders will always make more than equity traders and vice versa, as that is incorrect and demonstrates a lack of understanding of the subject as a whole, due to the fact that compensation is highly dependent on the bank in question and more importantly, the economy.

"Well, you know, I was a human being before I became a businessman." -- George Soros
 
Futures Trader Man:
In "Liar's Poker" bond traders made more money than others because Salomon Brothers had a world renowned bond trading unit which generated greater revenues than it's equity unit and thus compensated it's bond traders accordingly. At other banks however, the opposite was true and it is the same today, some banks will pay traders more for trading certain products because they are the bank's "niche" or are temporarily more profitable given the current macroeconomic environment (equity traders make more in bull markets, govt bond traders make more in bear markets, etc.) You can't just generalize and say that under all circumstances bond traders will always make more than equity traders and vice versa, as that is incorrect and demonstrates a lack of understanding of the subject as a whole, due to the fact that compensation is highly dependent on the bank in question and more importantly, the economy.

Kind of..Bond trading is the "niche" of banks or funds with bigger balance sheets. Banks with smaller balance sheets just can't hold on to bonds like bigger banks and move prices in their direction.

Bond traders made more money in Liar's Poker the same way they make more money now. Their product trades over the counter with bigger bid ask spreads and less liquidity than equities.

Kind of how equity traders who specialized in big block trades used to make a lot of money. Less liquidity and they made the trades over the counter

 

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