Damn, it doesn’t feel good to be a trader

For decades, traders have been the highest paid dudes on Wall Street. Deep six-figure bonuses were once de rigueur for the mere mortals while the full-fledged masters of the universe easily went on to eclipse their CEOs and rack up eight-figure bonuses as well as the occasional mental disorder or two.

Well, that’s all in the past now. Midas wrote awhile back that trading bonuses are set to get the shaft given the current climate, but unfortunately, that’s way better than what’s about to happen:

U.S. banks would have to change the way they compensate traders involved in market-making activities under one of the proposed restrictions of the so-called Volcker rule, according to a draft circulating among regulators.

The rule, which aims to ban most proprietary trading by banks with federally insured deposits, would exempt trades related to market-making as long as the activity met at least seven standards, or principles. One principle would be that traders get paid from fees and the spread of the transactions rather than the appreciation or profit from their positions, according to a copy of the draft reviewed by Bloomberg News.

Sorry monkeys, but I guess you can all kiss your millionaire trader dreams good-bye.

This’ll be a huge blow for the Wall Street job market. With automation right on the horizon even less jobs will be given out to wannabe traders under this regime and as far as future HF exits are concerned, without P&L, the talent pool will be very different from what it used to.

A lot of you monkeys have slaved away trying to get into BB trading hoping to realize your BSD dreams, but with this on the horizon, what do you think of it now? Is it still the way to go? As a career, does it still have a future?

Or is it on its deathbed, just waiting for the plug to be pulled?

Curious what you guys think.

 

This makes me sad... at least I'm still going for comp. sci... I guess : /

If your dreams don't scare you, then they are not big enough. "There are two types of people in this world: People who say they pee in the shower, and dirty fucking liars."-Louis C.K.
 
Best Response

Automated trading is not applicable to desks that specialize in highly customized products. Calm yourselves, gentlemen. The concept of automated trading in products that take 30 minutes to price with bid-offer exceptionally wide, is laughable.

As for this rule, the likely outcome is that it will be made so 'flexible' that it becomes toothless. The reality is, that there are many products that desks only show one side on (i.e. their bid or their offer). If that's the case, some off-the-cuff questions arise: 1. how do we determine the spread? 2. how do we determine the "traders pay" vs. the "salesmans pay" (assuming no mark-up).

We were chatting about this today. The 'armageddon trump card' is the firm separates the IB from the rest of the firm completely and drops the bank-holding status. But it won't even get to that.

Another example, we were thinking of. We get given (i.e.e client hits our bid) for some contract for which there is no market. say $250 mio of 1 wk AUDMXN risk-reversals (all my derivatives guys understand the illiquidity of something like this haha) We cant hedge it, so we risk manage it as we normally would... lucky for us, the gamma ended up being worth something and we monetize it thru trading spot. We make $4 mio doing this. How is that cash allocated? i wasn't profiting from the 'appreciation' of the contract, just doing my job as a market maker and keeping the book flat.

These are some of the questions, (and they have already been posed), that regulators will ask and this is how the watering down process begins.

Keep in mind why this rule was suggested: what they're trying to avoid is situations where the firm goes short a contract they're pitching as a great buy to their custies. (think Goldman and the Abacus CDOs)

Any questions, just let me know.

 

[quote=ERGOHOC]^ FXTrader, your username just reminded me of a vid I watched last night. Nothing related to this post. Just something funny.

fucking rich.

I am permanently behind on PMs, it's not personal.
 

I don't think that traders will ever disappear. Yes, programs can trade faster and take into account more stats in their trades but there has to be something said for human relations, knowing industry insiders that can see beyond the numbers. Also, many of the best trades took instinct, experience and human understanding that are hard to program into a piece of software.

What so you guys think?

 
jennifer85:
I don't think that traders will ever disappear. Yes, programs can trade faster and take into account more stats in their trades but there has to be something said for human relations, knowing industry insiders that can see beyond the numbers. Also, many of the best trades took instinct, experience and human understanding that are hard to program into a piece of software.

What so you guys think?

Aren't we all in a race against the clocks against automating ourselves out of existence? Every single profession is potentially threatened by automation by machines. The only thing one can do to stay ahead of the curve is create new knowledge or new processes. This is along the spirit of FXTrader's answer. Sophisticated, illiquid trades cannot be automated because they require creativity, something compters don't have yet. As long as traders keep finding ways to make trades more sophisticated than the computer can work with, they will continue to have jobs.

looking for that pick-me-up to power through an all-nighter?
 
jennifer85:
I don't think that traders will ever disappear. Yes, programs can trade faster and take into account more stats in their trades but there has to be something said for human relations, knowing industry insiders that can see beyond the numbers. Also, many of the best trades took instinct, experience and human understanding that are hard to program into a piece of software.

What so you guys think?

I think programmers are/will be significantly cheap enough to more than make up for these intangibles, hence the current trend of S&T. I agree there will always be a human component, but not anywhere close to the number of warm bodies today.

If the glove don't fit, you must acquit!
 
jennifer85:
I don't think that traders will ever disappear. Yes, programs can trade faster and take into account more stats in their trades but there has to be something said for human relations, knowing industry insiders that can see beyond the numbers. Also, many of the best trades took instinct, experience and human understanding that are hard to program into a piece of software.

What so you guys think?

But the number of those guys is going to be very very small. Already you see that the title of those guys is generally "portfolio manager." In the 2000's I saw our trading floor go from several hundred traders to about 15, and they were then called risk managers, not traders.

"Traders" are going to be relegated to OTC markets and a small number of guys overseeing a ton of assets. The real trading is going to be done by programs.

 

For those of us still in the early stages of studying, what do you think will be the most durable path to take? Years ago I was told that I shouldn't dedicate myself to trading since it will be the first to be automated and probably the most regulated. What requires an interactional and human component so much that it would be the safest to bet on?

 

This very definition of prop trading is so vague that all this regulation is rather meaningless. Traders can always say it was part of a hedging strategy. How can they possibly prove that a trade was discretionary? I do see suppressed comp for traders for the next couple years, but that's because of the current economic mess, not due to some regulation.

 

first of all, regulation comes and goes, worse comes to worst you can catch the next plane to HK/SG/Switzerland.

secondly, i don't think kids dream about becoming millionaires making markets. the buy-side is doing fine.

finally, technology, almost by definition, is the future. but let's not forget that people have been paranoid about being automated out of existence since the dawn of time. it's a bit like Plato complaining about the next generation of Greeks not being manly enough. i think there will always be a rewarding roles for serious thinkers and good speculators without physics and statistics phd's. and for now most of the top players are still discretionary guys.

 

Trading is going to be automated = jobs will be lost = greater competition for those few jobs out there. Will you have what it takes to nab that 1/20 spots available on the street?

Just look across the board, black boxes rule everything around us.

As for developing HF talent, only TOP TOP quants from top uni's or imense work exp will be taken that know the market in and out technically.

All of the qualitative inputs are now being modelled in a quantitative way.

"Young guns" trying to make it to trading, just quit while you are still young enough to make a career change. Just like a guy said early in the post "Trading will be dead in 10 years" - Sad but true.

Time to get realistic, start thinking of other career paths, because the golden age of banking is long gone, and if it ever does come back....it will happen in 10-15 years.

- Only time will tell....
 
GutShot:
Show me an algo that effectively builds its own daily cash flow models for trading distressed debt, or can analyse supply/demand dynamics for something esoteric like back end commodities futures, or bespoke products that are OTC and have no liquid market.

But, it's the fact it can be built.

 
blastoise:
GutShot:
Show me an algo that effectively builds its own daily cash flow models for trading distressed debt, or can analyse supply/demand dynamics for something esoteric like back end commodities futures, or bespoke products that are OTC and have no liquid market.

But, it's the fact it can be built.

once that's done trading disappearing will be one of the last things to worry about lol
 

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