prop trading

Being "good" is a mixture of talent and experience (and luck). I assume you have no experience? So why would you expect to go onto a prop, or any other desk, for that matter?

and yes you can wind up doing things you don't want to do. my very first desk was something I was COMPLETELY uninterested in. but I sucked it up, stuck it out, and got a decent amount out of it. still hated it a lot of the time.

Yes, I have no experience in trading. I only have PE experience(internship level, that is),and considering trying out the trading route. So did you end up switching to a desk you actually wanted?

"Yes, I have no experience in trading. I only have PE experience(internship level, that is),and considering trying out the trading route. So did you end up switching to a desk you actually wanted?"

Yes...hence i'm still here. now way would I have stuck around this long doing something I didnt like.

im rotating on a credit (IG + HY) prop desk right now, authorized to deal with equity and equity derivatives as well but dont usually do it. how did i get on the rotation? just luck. all but 1 of the traders have 10+ years of experience in credit research, some 15-20 years. Very senior group (youngest guy is vp). We mostly go long/short on corp bond and CDS and manange a pretty huge book. Traders trade whatever sectors they have expertise in. So the guy who did credit research in industrials will trade indistrials, auto, auto parts, and etc.

in term of the work, it's all about getting information (earning calls, industry expert/consults), researching (reading vast amount of research) and keeping track of the market. After all, credit trading is about going with your gut feeling on a relative value basis. Not a very quantitative discipline (unless you consider distressed debt, which you wanna model out cash flows and stuff).

I think there's WAY too much ethusiasm of doing prop trading at an investment bank out of undergrad. Flow trading is a great start to a trading career, because it teaches you how things actually trade in the market vs. how things should trade theoretically. And no, mostly likely you wont be placed into cash equity (nothing wrong with that), there are SO many flow desks, FX spot, fx options, fx exotics, IG credit, HY credit, distressed credit, natural gas, oil spot, oil option, agrilculture, metal, swaps, swaptions, treasuries, Fi exotics, emerging market, ABS, RMBS, CMBS, equity derivatives, etc etc. A lot of these products are very exciting and quantitative (if that's your thing).

i've talked to people in GS equity prop and distressed prop as well, if you want to go into prop trading out of undergrad, be prepared to be a master in research, and don't expect everything to be quantitative. A lot of it is very qualitative.

thanks, that was insightful. so prop trading is actually quite similar to how PE works? Do the people in those desks have flow-trading backgrounds, or more IBD/ER ?

PE is all modeling, negotiating deals, and trying to find underpriced value in a company - it is investing, therefore it attracts primarily bankers. Untilted was smart to touch on the difference between trading in theory and how trading actually works - what separates trading from investing (any kind of trading - prop or flow) is that liquidity becomes a major factor - it is the prime factor in flow, and a close second to research in prop. Gauging market depth is a skill that really can't be taught in a classroom (especially when all biz school profs scorn technicals) - you need actual experience.

PE is therefore a completely different route than trading. Most of the prop traders I've known made the reverse transition from HF to banks; a few of them came from flow - but untilted was right - most of them who came up in banks have backgrounds in research. Prop groups vary widely, and depending on how well they're doing or what strategies they want to employ, they may grab an analyst or two out of an incoming class, but I think you learn a lot more in flow. On a lot of flow credit desks, incoming analysts are often put with the desk researchers for the first few months on the job.

How the fuck did you get that from what he said? PE is one the other end of the spectrum => humongously illiquid very long term assets with perhaps active management

WallStWalrus, that's a great post. I especially agree with the statement below:

"liquidity becomes a major factor - it is the prime factor in flow, and a close second to research in prop. Gauging market depth is a skill that really can't be taught in a classroom (especially when all biz school profs scorn technicals) - you need actual experience."

The leader of my group actually came from flow trading background. He's not really in charge of any particular industry, rather a macro guy. A lot of these guys switch around from one bank's prop desk to hedge fund, then back to bank's prop desk.

BTW, technical analysis matters a lot on Wall St, despite what your professors say. There's actually a "CFA" for technical analysis, if you want to learn it properly.

To add on to credit prop:

other prop activities that I know of in the bank i'm at:

Mortgage prop: it hires out of undergrads, but the team has gotten a lot smaller.

merger arb: everyone has previous corp. finance (either M&A or LevFin) experience. Doesn't take interns as it takes a lot of effort to train.

equity stat arb: just one guy coding away

interest rate stat arb: one programmer. All these programs do is to generate buy/sell signals based on technicals (such as mean reversion, momentum) and fundamentals.

Special situation group: just a fancy name for distressed debt. 2/3 of the team was stolen from a hedge fund. Doesn't take interns.

delta 1 equity index futures arb: huge emphasis on IT and since you can hedge all the risk except dividends, it's really just risk arb betting on dividends

A lot of non prop desks actually do a LOT of prop trading and not much market making at all, like structured credit (not really a market to make), fixed income exotics (half and half), emerging market rates (half and half), FX spot (majority), agriculture commodities, etc.

How does one get into merger arbitrage, given that according to untitled they don't take interns? Will an MBA help? I know that Bob Rubin got hired into it after working a couple years in biglaw, but I doubt that's the path to follow...

(I have BB internship exp. in M&A)

The answer to all of this is that you are the smartest. Prop trading groups look at you, you do not tend to look at them unless you are in an extremely good position. You must be the absolute top of your analyst class, no way else.

For someone with fundamental equity research background at buyside asset management houses, what type of prop trading desks should he/she be applying to? And secondly, which BBs have such equity-related prop desk in Asia (say Hong Kong or Singapore)?

In terms of skillset wise, say buyside analysts are only familiar with company financials and traditional valuations etc....what additional skills would be required in order to make the switch to prop trading? Would it be technicals? Thanks.

prop desks usually get their pick of the litter, but I don't think prop traders are inherently 'better' or 'smarter' than flow. a good flow trader might not be good at prop and vice-versa; you aren't necessarily in different pay grades either. i've seen flow desks take in great bonus pools and prop desks get shit - it's all about performance.

what is important to remember is that 'prop' can apply to hundreds of different strategies, each of which demands a different skill set and talent. as i mentioned before, what defines trading (any kind) is the factor of liquidity, so yes, someone with a background in fundamentals will need to learn to read technicals. And by technicals, I don't necessarily mean cryptic chart patterns - more just things like volume, who's holding the big positions, who's looking for a position, where you think limit orders might be placed, what slippage has been like, etc.

from what little I know about merger arb, it's about discerning relative value based on the probability that the deal goes through. An intricate understanding of the process and applicable laws would be as inherently important as knowing how the markets for different tranches would react - seems like a background in m&a or law would be ideal. anyone with actual experience care to comment?

I'll be damned....this is probably the best thread I've seen on these boards in a long time....a newbie could actually learn something here...nice job...

"but I don't think prop traders are inherently 'better' or 'smarter' than flow. a good flow trader might not be good at prop and vice-versa; you aren't necessarily in different pay grades either"

again, i can't agree more. these two things require very different skill sets. i used to be the guy who asks stupid questions like "how many years of flow trading do you have to do until you can do prop trading?" The answer is zero if you've got the skill set and infinity if you lack it. meanwhile you are be a superstar at flow trading and making big bucks.

agreed. excellent thread. anyone care to share insight as to how the skill sets are different? which skills are generally needed for prop, while which for flow?

from my experience seems that flow you need to have better people skills and relationships. Also probably need to have a better understanding of liquidity and how a product trades since your generally not taking positions for very long rather just making a market or acting as an agent. Be able to effectively communicate to the client if anything happens that will effect execution. if your acting as a principale dont let the client run you over if they are the 800lb gorilla.

Prop need to be more analytical and be able to generate ideas, better understanding of managing risk. Act more like a PM of your book.

"from my experience seems that flow you need to have better people skills and relationships"

maybe. in prop you need to have great networks too. if you pitch a trade idea to a prop guy, he'll ask "who did you talk to recently". you need to be able to get information (legal, non-insider information that few people know) from contacts.

...I have traded prop at a large dealer and now work at a hedge fund. Generally, prop desks nowadays are totally seperate from the sell-side of the business. Where I worked we were even moved off the trading floor to avoid the appearance of conflicts of interest with clients. I would also say, trying to be objective, that trading prop is a much more prestigous/desired job then trading flow even though the relative comp of the two jobs can vary wildly year to year based on performance. As a prop trader you basically "run your own business" and have to deal with much less politics and bs then even a good sell-side trader has to navigate. You also dont have to kiss clients asses. For eg where i worked the dress code changed at one point and everyone had to switch except for the prop groups who just ignored it and went on dressing as we pleased. This may sound like a little thing but it typified the way prop desks are often kind of above the day-to-day bs that the dealership guys have to deal with. Of course it varies greatly bank to bank and group to group.