Hey All, I've been on WSO for a while since my college year, and now I think it's a good time to give back. Background: I graduated from a semi-target school as a Stats major with minor in CS, interned in a BB (S&T), failed to get a return offer, and then luckily ended up in another BB. Currently I'm a second year analyst on a Rates/Currency/Credit derivatives trading desk. I'm pretty open to any questions, and will try my best to answer!
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1) We do use python/vba to call internal libraries implemented in C++ by quant team and to automate everything that's manual. We don't use python/C++/SQL to implement sophisticated trading strategies on our desk, but some other algo desks might do. I automated almost evrey manual daily tasks, so I could spend more time reading news/book or come up with new ideas. 2) Recent hot topic in rates: Libor transition and discussion regarding negative rates scenario, linked with current market condition, 5-year highest vix and historical low 10yr treasury etc. Investors are craving for yield (flowing out of fixed income to equity) and carry trade is some of their favoriate (more people buying MXN rather than BRL given the rate differential etc). 3) & 4) Pretty difficult I would say. I applied tons of jobs in my senior year (not limited to S&T and span over couple of countires). The reason that I didn't get a return offer: a) 1 out of the 3 desks that I rotated on had real head count. b) I do not fit in that desk at all (personality and skill set wise). I would say even I got the offer and stay on that desk, I may probably feel very painful. When I got asked this question in the interview, I honestly answer that in that class, the return rate was around 30%, and I wasn't able to find the desk that I really like/fit in. I would also bring a recommendation letter from one of the desks (just in case).
My 2cents: If your summer internship is rotational and you can network to get to choose, choose the person/teacher over the sepcific product. As it's only an internship, you do want to find a teacher who's happy to teach and is approachable. Then you will likely find out that the products are getting more interesting.
Agree! Hull's book is a must-read book. Then may be search on wso and try to find more narrow-focused book per product category (from intro to deeper level, step by step).
To answer the question above, 1) as I answer below, my own don't deal with client relationship. but for general trading desk, Flow side, analyst can have their own PnL pretty early on, and then title just matters when it comes to risk limit and size of the book. At the end of the day, PnL matters more disregard of ur title. structued trading desk side, usually vp talk to client and sales, and you will be drafting legal doc with legals (if u are in structured credit), build up spreadsheet to analyze risks of exotics trades & price deals, reconcile pnl&risk, then do vanilla heding. 2) answered above. 3) I think an really easy-to-read intro book for swaps is: Interest rate swap derivatives and Other, by Howard Corb. Hull's book take more time to read but is also a mandatory reading on my desk! It covers more broad range though. If you are interested, read it! I'm still trying to read it again...cause I wasn't able to fully comprehend it at first read for sure.
4) Really really hard question to answer. Look at Europe, looks like the rate will still go down though the speed of going down is lower than US right now:) but who knows! I personally don't know what'll be the economic impact of further down negative rates. Look at the CSA agreement of Europe counterparties with banks...They have to amend their CSA agreement and decide what they should do in a negative rate environment. I.e. nowadays, if I post cash to the bank as collateral, do I have to pay interest instead of receving (in positive rate scenario)? Or can i reach to agreement, just pay 0 on my collateral? It's counterintuitive to me, and i'm still trying to read up more stuff, hopefully some experts can help me answer the question for you...
Low rates does stimulate the economy, but i'm not sure if the extra liquidity will flow to the right place. I know company will be able to raise debt at lower cost, but the question is if they are able create the right economic value and benefit the society with disruptive innovation. FYI The equity market to me seems scary as I don't know how to comprehend it...Does the company really worth the value? I'm lack of the knowledge to evaluate them properly, and don't know if it's a bubble and when it will break. I do think though we need to ultilize the low rate environment and create an environment with disruptive innovation that boosts technology and efficiency.
My guess is simliar to yours.. In the end it has to be a cycle, which repeats the history. But I don't foresee the start and the end point - that's why i'm still in bank but not in hedge fund:)
Hey thank you for all the questions! I'll try my best to answer as long as they are still within my current knowledge range:) Also have to admit it's been a crazy two weeks. I wasn't able to check back in for a min. Sorry about that! 1. Yes it is a very broad mandate. There are experts who are only hedging one element (i.e. G10 Rates and FX), and who are only hedging Developed Markets Credit. For EM a more experienced trader usually take charge of hedging all component tgt (FX, FX Vol, Credit, rates are so highly correlated in EM countries - check out Latam these days). That means hedging each element independently is very inefficient - the trader need to find a smarter way to handle these correlated component.
Product: Global (G10&EM) Rates (Vanilla swap, swaptions), Global (G10&EM) FX: (Forward/NDF, FX Swaps, FX Option (Vanilla usually), Global credit (NAM/EMEA Credit (index hedge and single name hedge); EM Credit (Soveriegn CDS and a few single name CDS hedge as there're not many EM single names). Also involed in TRS and CLNs with the structuring desks.
Above are the main hedging tools. Asside from the hedges, the desk need to deal with exotics products to assit other trading desks (evaluate risk of them, but almost never traded it). I had to spend all of my personal time reading up different books to catch up. Again, it's an unique setup indeed with only 8 people, but we do have a global team, and we collaborate with other region every single day to survive the extreme market volatitly.
I don't have a holistic picture of the credit derivatives, so can only say from my limited experience. I see that in the old days, extinguisher swaps and very exotics structured trades ( Extingisher swaps combine with SPV Issued CLNs) were very popular, and it gave u such a good day-on PV, but the carry on many of those books were just terrible (worst thing is those stuctured trades are soooo long-dated and those things are just bleeding these days. Anyway, now I see more demand from TRS (hedge fund bets) and vanilla CLNs. Again, I don't technically work in credit department, so...
As I said above: Vol and vol surfaces, Gamma & cross Gamma, credit risk, JTD risk, everything... Essentially we should cover all kind of risk that can be generated from rates and fx related products. Again, it's unique to our desk setup.
Not extracting value from spread taken against client trade. We don't face client directly and try best to trade and hedge with internal counterparties:) It is technically a directional hedging of an existing portfolio (not chosen/built by us). Please don't say your answer if u are able to guess what the desk is:) Too much information haha.