Compensation progression at BB vs Buy-Side for Traders
Looking for genuine insight on compensation trajectory for a trader at a BB vs bayside (e.g. HF or prop firm). In short, how does the compensation compare if you become very senior in a firm?
Obviously the average calibre of graduates entering the buy-side immediately after university is higher than their counterparts entering BB S&T roles, and are compensated at a significantly higher level, at least initially. However, what about later down the road? For example, if someone reaches the senior MD/partner level at a BB, I wonder whether at that point the compensation can catch-up/overtake?
For example, when becoming a senior MD/partner, you can partake in additional bonus pools related to the overall firm's performance. The overall firm profits at a BB will be greater than that of a HF/prop firm, so this additional bonus could be quite large.
In the past year, I have seen these recent articles: partners at GS/JPM/etc. earning EXTRA bonuses of $15 million just for not leaving; traders getting 8 figure bonuses; etc... how many years of a buy-side career is accounted for in these numbers. It is fairly likely that within the span of a long career there would be another major tail-risk event which would result in these massively oversized compensations - all you have to do is wait around for it?
However, if these banks really did pay more in the long term, then surely all of these top students wouldn't be going into buy-side trading roles. Also, you usually see senior MDs leaving the sell-side for the buy-side, not vice versa... So is it just the reality that compensation even at the more senior/management roles is likely to be higher on the buy-side?
Context: math major from top target (HYPSM) currently trading vol at top BB (1 year in) after turning down some middle tier buy-side firms for personal reasons. Am completely bored in the role as no intellectual difficulty (e.g. am discouraged from using coding/other technical skills to analyze data/speed up tasks) and have pretty poor wlb. Am taking time to consider whether I should lateral to buyside if compensation is actually higher there, or just stick it out for some pay-day down the line at the BB. (yes, am ignoring the fact that 99+% of people won't make it to the senior levels, but asking about the comparison nonetheless)
I'm going to be honest here, it's not time that's making these traders and MDs get 15M counteroffers, it's the top 1% of the 1% of traders getting offers like these because they have a definitive and high impact on the bottom line revenues for trading. It's the rainmakers and not everyone can become one so there's no reason in fantasizing or planning around comp figures that individual high-impact desk heads on a great year get.
You don't "stick it out" for some pay-day down the line haha, I do see you say you're aware of this but why ask for that comp when you have no idea if you'll make it that far anyways? In trading if you don't perform you get cut at prop shops or buy-side shops whereas in S&T you can probably coast until VP from what friends have told me.
You're a Math major from top target with a very high in-demand skillset at a top BB and talking about being discouraged from lateraling to the buy side though you also had middle-tier buy-side firm offers that you turned down for personal reasons (If these were family/mental health-related - my condolences to you. If they were "prestige" or career-related, it sounds like you made a mistake because I can assure you that you will definitely be intellectually stimulated here and compensated quite well for it.)
It sounds like you should've taken some of the "middle-tier" buy-side offers (If they were prop even more so because it sounds like you want responsibility and accountability for your work. I can assure you that a majority of prop firms will give you the ownership, responsibility, and stimulation you're looking for just by talking to a few colleagues at a variety of shops). Equity vol is a fun space when you're making decisions and have the opportunity to take ownership of risks and ideas, and you'd definitely get that at a prop shop quite quickly. I have always been more interested in the prop shops than HF analyst anyways and am quite happy here even though I've had multiple opportunities to hop to a "more prestigious" firm.
Second this. At the same time though, understand your own skillset. Becoming a senior MD at a BB is not so much about raw market knowhow - there is a lot of politicking involved. At a hedge fund, it will be based on your skill as a trader and the pnl you generate. It is vital that you play to your strengths, whatever they are. Being a maths major doesn't necessarily mean you should do the trader route vs the more political BB route - having the strong academic background can help in both routes.Comp is such a tricky topic to approach in this industry. You will most likely make the most doing whatever it is you're best at in the long run. Senior MDs/Partners make millions. Good market makers can also earn 7 figs. Same with portfolio managers. For top performers at the height of their careers, comp wise, I'd say the order is
1) portfolio managers
2) BB seniors
3) market makers
But there's no use fantasizing about waking up as Goldman's head of markets. Do whatever you're best at, and money will come if you do it well :)
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Desk heads at firms like IMC, Optiver (perhaps 15% of the traders) make between 2 and 5 million a year.
I would believe this in the case at Optiver in exceptional years where marbles are 5k or more but I definitely doubt the 15% of traders is the case at IMC most years given the number of employees making 7 figures typically 20-30 total and some would be managers or make between 1 and 2 million https://view.publitas.com/cfreport/imc-annual-report-2021/page/30.
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I can speak to BB equity vol compensation here as that's the path that I've gone down myself. VPs are in the 500k-1.25m range, directors should be 1m at the low end and MDs that head equity vol desks are 2m+ (GS being an outlier). These are ranges from 2021, which was a high in equity vol comp, and 2022 has been more challenging
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wdym by GS being an outlier?
Can you give some colours on the diff in pay between exotic and flow eq vol
1. I have considered it but spots for PM level hires are tough and I'm not at that level. Don't see the appeal of being an execution trader for someone else so haven't made the move.
2. I would say that the ranges have become comparable in recent years due to the increase in equity volatility. Historically FI has paid better at my bank.
3. Not at GS (no director levels there) so can't speak to the desks that are good there outside of eq vol. Macro volatility has picked up so FX vol/swaptions across the street have done well this yr whereas eq vol is more of a struggle compared to the last 2 years.
Changing this bc soft ppl got butthurt
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How many years does it take to become a desk head?
6 months or so (source: insider at Street Janes Capital Management)
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