Q&A Macro RV Analyst/Trader
Did one of these a couple years ago. Wanted to update as I’m a couple years older and wiser, but still grateful to WSO.
For the young monkeys out there, study the comment history of Bondarb, Matinghoul, and Rumplestilskin diligently. You don’t get knowledge from outside the industry often.
Brief career history:
- 1-2 years at small directional macro fund as a generalist across asset classes (equities, credit, rates, commodities, fx)
- 1-2 years at a larger rates RV fund
Gonna be a bit coy about specifics, but we trade what you’d expect a rates RV fund to trade (bonds, swaps, futures, etc.) across basically all developed markets.
What do you think your edge is?
Gonna keep this one a bit vague, but we trade a set of products that is not well understood by the rest of the market and we don’t stray very far away from that core competency.
Generally, understanding the flows in your product/market, who is incentivized or forced to take action given certain conditions, is the best path to success IMO.
Do you think you've developed macro "intuition" or a good feel for the niche markets you trade? And based on your response to the edge question, would you say outside reading the comments of the WSO posters you pointed out earlier and the popular macro books, poker is a good game to "prepare" oneself?
Coming from IBD, (M&A) although studied economics, how would you recommend me to try to position my career to move to a macro fund? What kind of courses, manuals, books, and materials would you recommend to be able to be up to speed?
There are plenty of book recommendations on this site and elsewhere, so I won’t go into too much detail on that.
I will say that a masters in finance, financial mathematics, or another technical masters degree would be a good way to rebrand yourself. Would recommend against an MBA.
How much of your PnL (roughly) comes from directional bets on rates vs tighter "RV" structures like flies/swap spread curve trades?
80-90% from RV and 10-20% from directional rates. I wouldn’t even say we do a lot of curve trades and would lump that in with more macro bets.
currently in a similar role to your first one - 1 year in, generalist covering a few economies across EM and DM.. what advice would you give to transition to a more trading-like role within the same fund or outside it? I am enjoying what I doing at the moment but would want to take risk at some point
Put together trade theses to send to your bosses or other PMs you respect. Track your trading PnL in a log. Show you can do the job before officially being given responsibility.
Any advice for breaking into a macro RV fund out of undergrad? What are the funds that hire ugrads? What skills do you need?What edge does an RV trader have that is different from a BB trader or quant trader?
Very few RV funds hire out of undergrad, and for good reason (I wouldn't even necessarily recommend it). You'll basically be useless until you have several years of product experience and these places don't have time to teach anyone. You're better off going into S&T rates or FX first.
By BB I'm assuming you're referring to a bulge bracket trader at a dealer? It's a completely different job. They're a market maker and make prices for people like me to trade off of. They can warehouse risk, but their job isn't to come up with original trade ideas.
Regarding quants, they can’t even trade the same markets as we do because most of what we do is OTC.
I know that most people consider rates S&T the best path to exit into an RV or macro fund. What are your thoughts on FICC prop trading desks?
FICC prop desk also works.
I'm leaving a LO and starting grad school next month. I think I want to do something similar to you (I know grad school is not the most efficient path to this outcome). Any advice of things to do on the side during school to learn/get more experience in your space?
Why you think as an industry we had to create fancy terms like “RV”, did your first fund truly never balance risk through offsetting structures? Does current firm truly always have offsetting ideas?
Or is it just a fancy term so investors/risk get that you are never fully directional.
My first fund would attempt to take theoretically offsetting bets across asset classes based on historical correlations, but obviously those correlations can change. They would routinely run large open explicitly directional risk in every asset class (e.g. long equities, short rates, long commodities, etc.).
As for my current fund, the model and strategy is entirely different so it’s almost not even comparable. We genuinely take very little directional risk - the net DV01 we run is ~ 1% of our gross.
When you say RV are you talking cash/futures basis in the belly/long end, SOFR/FF/repo type trades in the front end? What size of capital do you trade, how much balance sheet, what is leverage like?
All of the above (and more). Won't provide exact figures but our gross DV01 tends to run around mid 7 digits.
Oh I actually thought of you when I read that reply you posted earlier about understanding the the flows in the product/market lol. Just want to say I enjoyed reading your substack a lot. Are you planning on getting back from the hiatus?
How much smaller is the buyside presence in rates vol RV versus linear? I imagine vol is much harder due to liquidity difference and size of market. Any additional color on this side of the RV world would be great as well.
It’s smaller, but I can’t really speculate on relative sizes as I’ve never worked on the sell-side and don’t have a good sense for this. We do occasionally use option overlays on our positions, but vol is usually too expensive for our purposes (probably indicative of the fact that there isn’t a large supply people who actively trade rates vol).
I'm a RV commodities trader eyeing a move into rates/macro. I had an internship in college focused on rates
What advice do you have for changing asset classes/moving into macro?
I would say a lot of trading intuition applies across markets, but focus on learning the ins and outs of the products first. By understanding who (fast money, real money, governments, etc.) uses what products for what purposes and when, you can begin to develop a feel for the market and a bit of an edge.
yeah, I guess my question is how to get through the door into a rates/macro pod given I'm in another asset class.
Delete
How much are you using your fundamental macro knowledge vs more technical trading knowledge in this new role vs your old one?
It depends on what you mean by 'fundamentals'. I find that people often don't have a rigorous understanding of what they actually mean when they talk about fundamentals and it's just a catch-all for lazy hacks who do 'big-picture' thinking. All good buyside PMs will have a thorough understanding of the relevant fundamentals of their market - you have to if you're paying bid/offer away and can't see client flow. If you don't you won't survive.
My prior shop was the type of place that prided themself on taking 'long-term views' and doing deep fundamental research, but I now recognize it was (mostly) bullshit. My current place does far 'deeper' research, but it doesn't look anything like a few guys sitting around pontificating in a room. Instead, it looks like paying critical attention to the very few things that actually matter, that really move the needle in any particular market, and taking specific, nuanced views on what might happen with these trends over a given time horizon.
In this very important aspect, my current job is completely different from my previous job. This is not to say that it's never possible to take 'big-picture' views, sometimes you have to (or should, if the risk/reward is compelling). But a well-informed 'big-picture' view should be earned by years of experience and knowing all the details and nuances of a market like that back of your hand. There are only a handful of people on the planet who are capable of doing this well.
interesting thread.
Worked on a swaps and vol desk at a bank and I constantly heard “ these RV guys are so stupid, they just think because something is couple of deviations from the norm it’s a good bet, and then try to pick us off” lol I wanna be you tho lol
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