Is S&T dying? COVID-19 impacts
This is has been asked multiple times before, but is S&T dying as much as everyone says? Is it a good place to start a career? Which desks are good and which ones should people avoid? How will COVID-19 impact S&T? Will we see more downsizing? Will COVID-19 accelerate headcount downsizing despite increased volumes?
yes, not really, exotic desks and rates are good; vanilla desks are bad, depends on bank but on average net negative, probs but not necessarily because of covid (tech innovation), unknown
I know they will need less traders, but won’t there always be a need for sales people? Even if it gets automated, someone will have to sell their electronic trading platforms to buy side shops right?
Is it better to start a career in investment banking or capital markets and then lateral to S&T?
Do not recruit for IB if you're not interested in banking or the exit ops. Simple as that, best advice is to do an internship and decide how much you like or dislike it. Starting FT in IB is going to be miserable for someone that has a greater interest in S&T.
Probably biased but I don't think it's dying at all. Tech was supposed to replace people by now and even if teams are much smaller, they are still around. Covid was more of an opportunity for S&T really. As mentionned, flow desks are probably not the best place to start today, I would recommend exo/structured desks but you still learn a lot anyway if you are curious and put in the efforts. Only advice is that you probably want to be working for a BB if you're in S&T.
What other desks would you recommend on the equities side besides exotic derivatives and structured products?
Some banks have a strategic equity desk (mostly doing block equity trades) which seem to be a nice spot but there are very few seats. You can also speak to ppl in equity financing desks.
If you're willing to go into sales, lot of desks are doing structured products covering institutionnals, retail insurance, private banks/brokers, etc.
Don’t, go the banking route
Why?
When you begin a career, you need to consider a few things. You want to have tailwinds in terms of the direction of the industry you’re working in (tech has tailwinds, S&T has brutal headwinds), you also want optionality because you probably don’t really know what you want to do later on (believe me, plenty of S&T and IB kids leaving after 1-2 years) and finally you need transferability (ie: when a company asks you what your hard skills are, You can say valuation or corporate finance or whatever). S&T offers neither of the above, and while it is important to go into a job you enjoy and feel pasion for, you also need to be realistic and honest with yourself. Unless you’re a CS/quant person who thinks of themselves as a coder first, finance person second, the reality is you will find yourself in a bad place maybe 10ish years into your career if you start now. That’s not to say you won’t be succesfull or make a ton of money in S&T, but it raises serious questions about long-term career prospects (you will likely need to do an MBA to exit trading, because although folks in S&T are very sharp and hard working, you will have developped no tangible skills). Think of your career as an investment.
When will headcount downsizing stabilize? Eventually most of the cuts will be made right? Are we already past the peak of headcount cuts?
Why?
Been on the sell side for 3 years and here are my views:
1) Its dying for sure- the general trend is toward more automation not just front office, but MO and BO stuff as well- you'd be shocked at how many mundane, simple tasks still require humans to do, meaning there is a lot of room for automation and therefore headcount reduction. This trend is quite hard to stop due to the ongoing cost cutting that all banks are undergoing. There will still be a need for humans, but most of the people on the trading floor will be quanty or at least people who can program well.
2) Exotic products are better in the sense that general spread charge is wider/less automatable but you'd be surprised at how many seemingly complex products like options and barrier options are now dealable on an electronic platforms. Just 2.5 years ago when i was rotating on a EM credit desk, traders were commenting on how difficult it is to automate their product due to illiqudity etc and just a few months ago they were launching a simple electronic platform for clients to be able to deal bonds electronically.
3) Re covid- If anything, the crisis has proven that even with less headcount, trading desks can generate just as much revenue if not more than in previous years (given the bump in S&T pnls due to market volatility). Also, most banks have 70-80% of traders/sales etc being able to WFH, which has shown that the industry isn't tied to the trading floor (i.e. all that investment/maintenance cost in fancy computers, hoots, infrastructure etc) isn't essential to generate PnL when traders are still getting by fine trading from home.
When do you think non-quant people will be phased out of sales and trading? Do sales people still need a quant background?
I mean theres no set timeline and it would vary bank to bank, product to product and desk to desk. However, banks know that electrification/automation is the trend and have been investing/diverting resources accordingly. Each bank is going to focus on their strengths i.e. are they stronger in rates or fx or equities and will likely make the move their first IMO.
Also non-quant people won't be phased out entirely but just to give you an idea, the cash desk for FX at my bank at the moment has around 2-3 traders in its busiest trading centre whilst a decade ago it probably had 4-5 times that amount of people. Equivalently the guys running the electronic platform for FX cash (all quants with PhDs) prob has around 3 people and they do the vast majority of transactions for the bank in that market.
Here are some excerpts from a book by the retired Global Head of FX at DB that really struck me (hope I don't get in trouble for these screenshots lol). Book is the best thing I've read so far on automation in S&T. You have to keep up apparently... https://www.amazon.com/Why-Arent-They-Shouting-Computers-ebook/dp/B019C…
With a mixture of covid, central bank interference, local government interference, future market uncertainty etc you’ve got a lot of volatility happening in the markets as of recently that’s contrasted with the market conditions during 4Q2019. With volatility spiking you’ve got FICC desks particularly doing well and getting a lot of action such as Rates, EM, FX, but other desks having slightly lower performance such as Credit.
This particular risk environment is not in any sense what is considered normal so you have IB dropping revenue (M&A specifically, DCM/ECM is another story) but S&T increasing revenue due to so much market volatility.
If you listen to the last quarterly calls from all the BBs they repeat this exact same notion - great overall performance and a significant increase in S&T revenue that offset the decrease in IB revenue and balanced the overall total investment banking revenue structure.
If you’re talking about the future of S&T post-COVID then that’s a different situation. Obviously automation is increasing but the complexity of some products will be much more difficult/expensive to automate. So just depends on which desk you’re talking about. Cash Equities and FX Derivatives are completely different playing fields.
Overall, I think both IB and S&T are great places to start but they entail contrasting personalities and completely different types of work. Ultimately the value someone retains from either of those groups greatly depends on the individual’s capabilities and what exactly they’re seeking in a career.
Would you recommend going into S&t after an MBA if that’s where my interests are? Or would it be smarter to go the IB route and possibly move to capital markets?
Don't know of many people who pursue S&T after an MBA. I would look at HF or AM if your interests are more markets-focused. S&T frankly comes with limited exit-opps and pursuing it post-MBA might pigeon-hole you even more if you decide to change careers later on.
Like I said, IB and S&T have contrasting personalities and work environments so it really depends on what you’re looking for and the type of person you are.
Post-MBA if you suddenly decide you want to be a trader, just remember that there’s a zero chance people are gonna trust you with your own book right off the bat whether it’s sell side or buy side. Everyday is different as the markets are ever-changing, and unpredictable shit like covid and Trump tweets have the ability to impact various indicators and cause different price movements.. it’s enough to give you daily mini heart attacks but it’s kinda fun in a sense (this obviously depends on which desk you’re on but I’ll just emphasize the market-making/risk-taking ones). IB is much slower and your deals are more long term over months to years. Plus you’re not really executing any decisions, just answering to nitpicking bullshit comments from upper management. But hey, buyside’s just around the corner so there’s more of a solid long term fulfillment there.
I could list all the pros and cons of IB and S&T but at the end of the day they’re still subjective. You’ve seen numerous forums of people coming out of slums to land in BB front office gigs so the whole “buyside guarantee only from IB” mentality is kinda bullshit to me. And to be completely blunt, if that’s your main purpose in a career then yeah maybe you should stick to the most generic way to get there.
At the end of day, best advice I can give: talk to people from all sides to get a full circle analysis and follow your gut. It knows more about what’s meant for you than a bunch of people online pitching their bias opinions (me included).
If markets are your interest then go markets, if you're interested in deal making etc then go ibd. Very few MBA professionals go to S&T anymore as they know prospects are grim/MBA teaches you very few skills for you to actually succeed in being a trader.
Will rates desks perform well in the next 2 years given the fed announcement? or would you say desks such as emerging markets would perform better
Don’t mean to sound arrogant but trying to gauge where a certain trading product will be at in the next 2 years is nearly impossible / a waste of time. This isn’t IB where you can model a company’s future out based on its past performance; there are a multitude of factors that impact a product and what is happening now in the markets could completely turnaround just on a day to day basis. If you’re talking about a trading desk in itself, it doesn’t just lose value like an asset over time based on 1-2 metrics (clearly a market collapse is the exception).. it’s really much more complex than that.
Sales i've seen exits to broker/agencies before but very few to a buyside shop (unless they are super senior and they have good relationship with the buyside client/proven that they can generate money making trade ideas).
You can exit to business dev, but only if you leave early i.e. within 3-4 years or so, but from what i understand, you will start at the bottom again.
i'll be starting in S&T FT in July. how do i get the fuck out? already planning on getting an MBA in the future but not sure of S&T people are receptive to people leaving for MBAs. how do i ensure i get a good rec?
Why are you going in if that’s your mentality?
best offer i got
You want to exit before even starting, that's odd. I can understand an IB analyst that wants to exit to PE asap but that's not how it works in S&T.
MBA is not relevant for S&T. You should keep applying to the jobs you actually want instead of starting somewhere else.
i know an MBA is not relevant, im trying to leave the industry altogether. i summered in s&t and didn't enjoy it but didn't get any other offers so i took the full time s&t offer
Goldman just made $1 billion trading commodities...
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