Prop trading Vs S&T - Europe centric

I've been given a couple of offers for FT, in S&T and a prop shop market maker. After digging a bit deeper into both, I cannot figure out why people choose prop shops over S&T.

1) comp
So starting out comp can be higher at a prop shop. However, with starting salaries in s&t being bumped to £70k in London and bonuses taking you to around £100k or higher, we're not really talking about any change in quality of life here (especially post tax). Comp grows faster in a prop shop, but you take on significantly more risk to your job security (I heard churn was as high as 25% for some grads) so it's essentially a risk premium. Average tenure at these firms tends to be a lot shorter. Not only that, comp caps out lower than s&t at director+ levels. Finally, exit ops from s&t to hedge funds can be quite a lot more lucrative than prop shop exits to other prop shops, where you're always in the mid/high six fig to low 7 fig range compared to low/mid 7 figures to 8 figures for rockstars.

2) work life balance
Workload as a market maker doesn't get easier, while seniority in a bank allows more delegation and less hands on involvement. Constant pressure which never gets easier compared to improving wlb as you get senior doesn't seem like a good deal.

3) optionality
This one goes without saying - BBs are much bigger and you can pivot to many desks in interesting products that prop shops don't have. Plus, looks better on your CV if you ever decide you want to leave trading.

So, to people in prop trading, or people who wish to go into prop trading: why? My personal feeling is that there's a lot of hype around the difficulty of the interview process and how it's highly sought after prestige wise by university students which makes people take the offers (plus higher starting comp which excites usually poorer students), but in the medium or long run I feel like it's just not the best option. Thoughts?

 
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Apologies for the long response, there is quite a few points to address that you mentioned so I will try to keep it to a minimum:

1) With regards to compensation, I am assuming the S&T comp you mentioned is applied to the largest Bulge Bracket and elite boutique IBs, comparing this compensation initially to smaller prop trading firms is probably more similar however if you were to compare to the top prop shops (JS, CitSec, Optiver) then I can assure you the comp at these firms significantly trumps any initial comp you would receive at S&T (Optiver total comp is £200k for graduates in London).

As for retention rates, I would agree that 5-10 years ago prop trading did have a much higher churn rate compared to S&T, however this trend has significantly changed. I have interviewed with a few of the firms listed above and they agree that although this trend has gotten better, this has been caused by a much more difficult and thorough interview process which requires significantly more to pass. Once you are in, you can see retention rates at prop shops at over 90% for recent graduates due to the excellent training they offer.

Tenure at prop shops can be shorter, however this isn't due to people getting cut. This is more due to people just wanting a change of scenery either from going into another prop shop or back into education. Some people also look at joining tech startups as an exit option and others just retire early because of the comp they gained earlier in their career.

As for comp, I would argue that there are less people than you think making 8 figure comp packages in the HF sector. Although you do get some rockstars these people would be less likely to be making 8 figures as a trader due to their PM being in control of bonus talks. As a PM you can make this type of money at very large hedge funds however the odds of making it to this very lucrative role in these firms are quite slim and you also take on a similar risk profile to that of starting up your own company so the tradeoff of doing this may not be worth it unless you absolutely love being a PM at a hedge fund.

2) I would argue that a more senior role within S&T takes on much more stress and responsibility from keeping clients happy and bringing in more investor capital, if the markets don't swing in your favour in certain years then you can bet jobs are more likely to be cut here than at prop shops (look at DB over the past 3 years of their trading division). I would say they both increase over time but in different ways.

3) BBs are bigger in size, however if you develop certain skills within a role then you can always switch out to other industries as long as you are driven. Prop shops are known for letting traders switch into more risk/operational roles internally and some traders look at other opportunities within tech or even starting their own firms.

Overall I think the skillset is what makes people have differing opinions over which industry is best for them. S&T involves more softer skills and is more client-centric. Prop Trading is more engineering and tech-based. Both industries pay considerable compensations so it isn't like you will end up poor in either one. The best thing to do is to work out what skillset are you better at and what drives you the most to succeed. By picking out of these industries based on this criteria, this will help you further down the road as you will be less likely to be cut in that industry, be able to achieve good comp (especially as both industries are heavily tied to performance bonuses) and will less likely have regrets down the road.

 

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