Traders at hedge funds
Hello everyone,
This is my first post here.
I tried to search on this topic, but couldn't find much.
Please forgive me in advance if this question is very elementary.
I was wondering if traders working at hedge funds are generally execution traders? The way I understand it is that a PM tells a trader to buy or sell a security and it's up to the trader to go out into the market and execute at the best possible price. Is there more to it?
I think you are broadly correct.
At firms that are large enough to have people dedicated to trading with the title Trader, their role is largely about execution. But traders also monitor news flow, volumes, options, etc. whether through their own analysis or from active discussions with counter-parties at the brokers.
Traders also help in the implementation of a trade - an analyst might work with a PM and decide that they want to be long HLF. The trader can recommend how to best implement that idea through stock and options based on implied vol in the options, availability of shares, etc.
The normal caveat applies - it depends on the firm / strategy. Some traders also have discretion over their own book. I worked at a fund that didn't trade frequently in our core positions, but the trader had discretion to day trade in names that the PMs were positive or negative on, while his core role was execution. At other firms, the line between PM/Trader might be more blurred.
A senior level guy on WSO (currently at a HF) told me that this is not true. Its only true for traders who move into long-short funds. He told me that they would not hire bankers at his fund because they would know nothing about markets.
I have a question relating to this. Would an 'execution trader' get paid less long term because he's 'just executing' vs 'thinking' about what trade to pick?
A few things here...
What is not true? I don't see a question relating to whether bankers would be good for this type of job. If you are making the point that execution is simpler at L/S and could be more complicated if you are trading ABS, derivatives, etc, than I would agree. Yes, an execution trader would get paid significantly less than the analyst / portfolio manager who are identifying the winners and generating the profit over the long term.I'm not trying to bash Traders, b/c as I say, there's a lot more to the job than simply giving out a trade to a broker to execute or hitting Buy. Having said that, simple execution is a function that is somewhere between front office and back office and pay can reflect that.
He said that all people who work in Trading (for example at a BB) do not end up as execution traders. You have to be creative. I added in the bankers comment because that what I was told by one guy. Another guy said to me that his HF like bankers of a specific type e.g. 'healthcare guy', 'financials guy' etc.
In your opinion, do traders at investment banks/prop trading etc firms always end up as execution guys? Is the only way to become a portfolio manager through IBD or ER?
What do you think ? Who in your opinion add more value ? Why do you think they will pay you for ?
It depends entirely on the fund strategy. If it's a macro or quant fund, traders are the business. They trade the fund's money. If it's a long/short (or market neutral or long bias or short bias) equity fund ... or a distressed debt, special situations, event-driven fund then the traders are going to have the execution role you described. In those funds, it's all about the research and analysis driven by the analysts (who typically have a more banking-esque skillset).
Dolores dolores quia amet dolorem vel tempora quo. Quia error et beatae rem. Quo hic labore labore consequatur.
Expedita ipsa quas voluptas rerum modi corrupti. Odit itaque omnis est doloribus quis labore libero consectetur. Eum occaecati vitae perferendis illo eos quaerat. Odio assumenda itaque ut qui. Officiis ipsa rerum laboriosam vel ratione.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...