Deciding which area of trading to specialize in
So I'm at university and I need to decide what kind of trading I'm going to focus on, whether its FX, commodities, equities, debt etc. Anyone have any idea of how to do this? I've read and am reading general trading books but is there any book that gives an overview of all these sectors which will help me make a decision?
Thanks.
Go meet with traders on the trading floor, ask questions and see what you like. That's what I did to narrow my interests to rates and credit products.
Here's the great thing, the world that you live in isn't a vacuum- anything that affects currencies will likely translate into opportunities withing commodities as well as equity and debt instruments. Obviously there are numerous features that are unique for each asset class, however beyond that it would be highly beneficial if you were to spend your time developing strategies/ trade ideas/ market philosophies than deciding which asset class to trade. From that point on you will likely identify the asset class that you have some bias towards.
There is no point in deciding where you want to focus. You have no institutional background - the most focused you can get is reading a couple books and staying up to date with the different asset class sections on WSJ and FT, which is what you should be doing anyway with all asset classes. So even if you focus on one asset class, you will still be a complete amateur for those products because you don't have institutional experience. Simply put, you need to focus on everything.
Trying to limit yourself now is pointless, and could make you a less competitive candidate. You should have an idea for what you like most - which you get by reading the news, trading your own capital (not paper), and visiting banks - but you need to stay on top of everything.
No you don't. You should be talking to traders, do internship, read some books, do some trading on your own. Just don't make a decision right now about the asset class you want to focus on. I first started out with FX, moved over to derivatives and thought I would be the next LTCM (without the downfall), but ended up at the equities trading desk at my firm.
Do you have any suggestions about which books I should read which give an overview about the asset classes? I know and I'm reading most of the popular ones but I only have general investment books, nothing that goes into too much detail.
Why do you need to do this?
thanks guys, some good advice here. i'm curious since I feel that most people at my level have a basic idea of how most asset classes work and what factors influence them and I thought that if I could have a better idea of where I'd like to work in the future I could get into actually reading stuff and networking with people more relevant to that particular asset class.
also @shemonkey - what would you suggest then for a sector that wouldn't be automated soon? Thats another reason I'd like to know what I should focus on, since I'm not a pure maths major, and while my maths isn't bad by any means I'm nowhere close to being a quant. And I know FX is 24/7 while others are based around more market hours, not exactly sure of what I would prefer since I don't know enough about these sectors individually.
pick a sector or product that won't be dead in a few years: dead = automated; if will be dead in a few years = industry is probably at the very beginning of building up platforms to automate now
let us know your preference of product, if any
let us know the lifestyle / day-to-day you prefer. some products are high flow (lower margin per trade, but makes the environment more exiting), so you trade every other minute. some others you make a few trades a day if that as a market maker.
can someone experienced with trading run me past the 'typical personality' profiles of some of the main desks. i heard people on fixed income desks are usually more chilled out/casual whereas equities are more frantic because they are constantly trading. newbie to this so i may be completely wrong.
also a generic skill set thats useful in particular desks e.g. i heard FI desks like people who can model vs equities who don't care, would be useful. i have read the vault guide, but it mainly describes the area rather then talks about the people.
thanks in advance!
It's entirely impossible to generalize personalities, as I honestly don't think any specific product has any "stereotypical personality". One of the desks I was on had a couple guys who would freak out all day, curse etc, while others on the desk were calm, chill, and relaxed. Generally there is an overall culture on each desk, but IMO it doesn't have to do so much with the product as it does with how the cards fell and how the desk turned out. That said, if you do have an internship, fit can be more important than the product that you trade. Although you would like to be on your "favorite" product, if you hate everyone you work with you will be miserable for 10 hours a day regardless of what you trade. During my SA stint literally EVERY desk I sat on told me to look at the people FIRST, then if it's a tie there pick whichever product you like more. You can learn products, but you can't really adapt if you hate your coworkers.
i would say it depends on
1) skills (fundamental/quant/macro/technicals/accounting/statistics/programming/etc) 2) specific interests (certain sectors, certain instruments like derivatives, certain asset classes like commodities or real estate, etc) 3) personality/fit (athlete/jocky/nerdy/fratty/school/major/cultural background/etc)
If you want an introduction to derivatives, nobody comes close to John Hull's 'Options, Futures, and other Derivatives.' I've tried Espen Gaarder Haug's book "The Complete Guide to Option Pricing Formulas", but he kind of lost me when he's introducing more than 60 option's formulas.
When it comes to FX there are a bunch of books on technical analysis. I just picked a currency pair and followed it. Just remember that there are a lot of things that influence the pricing.
Equities; just follow companies and see what other analysts are saying about it. Pick a sector and master it. Bodie, Kane & Marcus; "Investments" is an okay book.
pokemon cards probably won't be automated for a while
I love this thread.
For oil, check out Oil 101. I'd suggest not only reading WSJ/FT, but also Bloomberg and other publications to get a feel for every asset class out there.
There's no such thing as a typical personality for each desk. It varies A LOT by bank, not by product. If you are not interning with the guys, just spending some time the best to do generally is to look at the personality of the Head of the desk, MDs and most senior people. People tend to attract others with close personality. People will tend to turn into their bosses, so see where do you fit best. Like leveRAGE. said, num 1 factor for choosing a desk is fit. They have to teach you a lot, and that is way easier if you get along with everyone. About the products in themselves, don't be lazy man, you can find a lot of good threads about Rates, Credit, FX, EM, etc.. in this forum, just look for them.
Interesting. How about personalities for IBD vs Trading? How do you know if your more of a banker vs trader (except for being able to work the hours! lol)
Scalable. Do you want to sell your time or your skills ?
cash equity desks have a big future, my boy.
FX was internship. Derivatives desk was fired or placed elsewhere due to new head brought in his people. I was lucky enough to end up at the equities desk.
would you pick one desk over the other if you could and why?
No. I'm only doing this for four to six more years and then I'm out. Can't see why I would do this for more than the time periode I've set.
I find equities to be the easiest asset class to trade. Didn't matter how much I learned about the FX market, never seemed to get a hold of it. I was only on the derivatives desk for a couple of weeks before the shift (I was on the track to become a market maker.)
A last tip: Use the fucking search function.
If you like equities, choose equity sales or research as trading is dying fast.
IMO...
How your currently attending college (I have no clue how far along you are) focus on becoming a quant if you REALLY want to get into trading. Don't concern yourself too much about a product. Hope it works out for you.
Good luck trading!
you don't choose the product, it chooses you
hello - just realized you are still in university. you should not specialize in product at the university level at all. focus on macro market knowledge and acing your interview.
for all interviews, FI or Equities, 'pitch me a stock' or basic stock option questions have been asked. this is because out of all products, equity cash is the most 'reachable' for the common student; most mock trading sites are vanilla equity only. most kids start out trading their PA in equities.
another downside for choosing a product now: everything you know about which would be "better for you as a trader" are all based on assumptions. it is very rare, at your point, for you to make a strong enough point to argue for one product and against another product. if you early on rule out parts of the trading floor you do not want to be one, you hurt yourself as a candidate. (seems to picky, doesnt know what hes talking about regarding the products he 'specializes' in, etc.)
@brianklk he's probably joking, but brian is right re: 'it chooses you.' your recruitment process will focus more on whether you are good for "sales and trading in general". once you get into the general pool of candidates... when you get your offer, desks will narrow you [generic, pool of candidates] and place you to desks. this sounds like a HR jargon, but, indeed the people placing you know a lot more than you do-- by seeing parts of personalities you display that probably will make a more educated placement choice than you can from your seat right now.
so i'd focus on more general market knowledge, trade some mock trade accounts/participate in some trading competitions, and ace interview questions. products you'll figure out when you get there.
good luck
Trading specializations: skill & performance (Originally Posted: 12/31/2014)
so i was talking with some friends who would like to get into trading and we were wondering which was the asset class (derivatives, exotic [equities], FX, rates, plain equities, etc) that offers the best performance for a trader given a better than average skill set.
that is, if my skill is better than average (don't rain the overconfindence bias on me!), which asset class should i be in?
and by that i don't care about the ceiling (there might be a class where extreme skill might make you a millionare but if you are just a little bit short of it, you are in the same boat as everybody else).
the opposing arguments were that higher complexity should give a broader range of possibilities to exploit passing ineffciencies but it was also true that as complexity increased, so did the expertise and the knowledge of the people at the trading desks (and here i am thinking Fixed income as a proxy compared to cash equities).
You're on the right track in terms of thinking, but it need not be a product that's too complex. But FI would be a good start to choose an area.
could you elaborate some more? why do you say that i shouldn't think on product level?
Not to suggest overconfidence, but on what metrics are you determining skill? It seems you're trying to divorce skill from product area in your example in some sense, when history would suggest cases where one's perceived skills were very much tied to a particular product having been a hot area.
And this may be a macro bias, but that's one reason for not thinking on a product level. Each asset class goes through periods of outperformance/underperformance vs. other asset classes and the wider market. On a broader frame, you can choose to allocate among various asset classes, which is an approach some macro managers take. Granted, many macro dudes focus on an area of specialization, say fixed-income, but within fixed-income there are many products and many ways to express views in a trade. Even then, it would be folly to not think through the implications that other asset class movements have on your particular specialization.
This is not to say you shouldn't think on a product level, for example, moving into a product area where little perceived opportunities exist on a certain area (e.g. bank) can be limiting. But you can also paralyze yourself in thinking about all the possibilities for any particular product and its growth, which detracts time from actually learning the product thoroughly nd how it trades.
Ah well we were thinking at a less sophisticated level, example: in plain options on equities, you might have edge if you can predict or handle better than others the volatility surface while on cash equities your focus is entirely or market depth and extreme timing awareness. Those are different skills and might yield different marginal extra returns if compared with other traders.
I always say its pointless to try and choose a product unless you have a strong view on what will be hot in 5-10 years (when you will be at a VP+ level). Theres not much point if you know what will be hot in the next 2 years as your pay will be irrelevant anyway. Also you never know what regulation will be going forward and how it affects certain products. At the end of the day its a crap shoot, so go with what interests you.
The general advice id give is to go more complex if possible. I.e learning exotic equity derivs will encompass learning vanilla derivatives, and so the transition to simpler products is easier. Simply it keeps more options open.
Also its a pet peeve, but derivatives isnt a stand alone product/asset class. Each asset class has cash and derivatives as a subset.
One thing I've realized...a true understanding of derivative pricing/trading underlies virtually every financial product you could imagine. I like that.
Understand basic structured products (CDO, CMO, etc.)
if you've got the chops to trade exotic derivatives..yeah..go that route but there were/are plenty of traders who make/made good $$ trading cash (fx, futures, equities) ...how volatile the market is seems to mean the difference between making tons of money and making nothing.
Options and penny stocks. Learn about options first
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