Q&A: Equity Derivatives S&T

Hi all!

Open to any questions regarding my career path so far as well as questions about Equity Derivatives Trading and the differences between trading at a IB, at a market-making firm, at a prop-trading firm or at a buy-side firm.

Here is a little bit about myself:

  • studied Mathematics in Canada (had a mediocre GPA);

  • did a few finance-related internships (WM, Trading, Risk Management, etc);

  • worked in Equity Derivatives Sales at a French Investment Bank where I covered top Hedge Funds for Volatility strategies;

  • had a good GMAT and went to business school in the UK for a year to study Finance (MSc);

  • recently started a job as a Equity Derivatives Trader at Market-making / Prop-trading firm in Amsterdam.

Best,

TeddyRoze

WSO Mentor

Want to work with me? Check out my profile here.

Comments (37)

  • Analyst 2 in S&T - Other
Nov 4, 2020 - 8:28am

Hi! As far as I am aware, compensation on the sell-side is becoming more and more standardized at the industry level. Entry-level salaries will typically range be between 45k-55k GBP in London at most banks, French banks on the lower end I would say. The difference starts to become noticeable once you move to the VP level where you actually see a lot of people starting to move around. French banks like to attract MDs from other banks by offering really nice compensation, that's usually how they are able to compete but for people who grow organically inside, progression is not as nice (hence the moving around). Regarding the difference in pay between sales and traders within equity derivatives, it's actually quite small at French banks and you see more Sales people moving higher up the hierarchy while traders will more often move to the buy side.

I hope that answers your question!

  • Analyst 1 in IB - Gen
Nov 4, 2020 - 7:39am

Any tips or advice for the newbies who just accepted a full-time offer?

Most Helpful
  • Analyst 2 in S&T - Other
Nov 4, 2020 - 8:40am

Hi! First of all, congratulations on your offer! To be quite honest, the answer is quite dependent on the exact position but I'll tell you what helped me most:
1) Don't be shy! - Talk to as many people as you possibly can, even more senior people. You want them to notice you and to know who you are. Being nice to others and a fun person to work with is very underrated in my opinion. Of course, pick your moments and don't be too pushy in general but you will quickly develop a sense for that.

2) Be on top of things - at the start, it's always hard to multi-task and understand everything that is going on around you but that's normal and no one expects you to know everything from the start. However, when given a task, always make sure you understand what you are asked to do (so always ask questions and clarify) and do it as well as you possibly can (that goes without saying). There is a tradeoff between speed and quality and no clear answer as to what is more important, it depends on many things but you will also develop a sense for that over time. Finally, as you become more comfortable in your position, try to always have an answer: what I mean by that is, people will ask you questions and most of them you should expect from the start, so know what your answer will be. (Don't lie if you don't know though)

3) Adapt to the person you're interacting with - you will find that there are many different personalities in the industry (buy side and sell side) and it will always play out in your favor if you are able to understand people (what they need, what they want, what they like and dislike...).

4) Be pro-active - whenever possible, try to add value, let your team know about the ideas you have, how to make processes faster or more efficient for example.

5) Leave a written trail - that one saved me countless times! When you are asked to do something or you confirm something to someone, always send an email (or chat) to confirm, even if that means repeating exactly what you just said out loud. Something like " Hi XXX, As discussed, ..." will do just fine. It's very hard to pin the resonsibility for something that went wrong on you if you left a written trail showing you acted in good faith/the right way.

I hope these will help you and wish you good luck!

Nov 4, 2020 - 11:33am
cornstar, what's your opinion? Comment below:

Hey,

I have a final round interview for a sales intern role at a MM. I believe it's for equity derivatives, but could be rotational on different desks. I was wondering what types of people they are looking for? I'm trying to prepare and am not sure if I should prepare more for brainteasers or behavioral / market stuff? Any advice to nail the interview?

Thank you in advance!

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  • Analyst 2 in S&T - Other
Nov 4, 2020 - 6:03pm

Hi! From my experience, the type of people they typically look for really depends on the asset class you will cover. Successful salespeople are either really good at selling (I think that's more of a behavioural trait some people have, it can definitely be acquired too) or they are technical enough to add value to the buy-side clients they cover. Given that this is an internship, no one expects you to be very technical yet but people will expect you to know the basics of the asset class you will cover, so my first advice to you is to get some clarity on that. Brainteasers are really a cultural thing, some firms love them, some don't but if you look at past interviews on Glassdoor for example you should see whether or not they ask them. Market knowledge is very important in my opinion, you should be aware of what's going on at the moment and have one or two industries or topics you can talk about. The way I prepared was always as follows:
1) Fit/Behavioural - know about the firm, the role, why you are interested in them and in the asset class in particular.

2) Technical - know the basics of the asset class(es) you will cover, there's a lot of material online for most of them but I would be happy to schedule a mock interview with you if you think that can help!

3) Markets - know about important events, know about at least one topic really well, know where the main indices are trading at and maybe have a trade idea ready (doesn't have to be a stock pick).

Finally, the most important thing is they must like you, so be nice, be confident and be honest!

I hope that helps, best of luck!

Nov 5, 2020 - 2:43pm
cornstar, what's your opinion? Comment below:

Thank you so much for your reply. You gave some really good advice and I feel confident for it. I'll keep in touch if I think a mock is needed, I appreciate you.

Nov 4, 2020 - 3:44pm
rudyha, what's your opinion? Comment below:

How bad was your GPA? I am in a similar position and would like to go down a similar path. I've gotten my act together, but I had several semesters of around a 3.0. I am an international student at a semi/non target in the states, idk which.

  • Analyst 2 in S&T - Other
Nov 4, 2020 - 6:07pm

Hello! My overall GPA was around 3.0 at the end. What really helped was that my Major GPA (so only classes part of my major) was much better and I tried to sell that. My last semesters were better too and I tried to give a justification during interviews whenever necessary. I wouldn't bring the GPA up though if not specifically asked, a lot of firms end up not caring that much about it once you're past the first stage. If you're still in undergrad, I would consider taking the GMAT and really preparing well for it, a good GMAT can compensate for a mediocre GPA and that is your redemption! (That's what happened for me). Doing a one-year masters program after your Bachelors (or even a second masters degree) is kind of like a reset button and while it is not available to anyone for financial reasons, over a whole career it can make a difference!

Nov 5, 2020 - 9:52am
rudyha, what's your opinion? Comment below:

Thank you, I also have a high major GPA and upwards trend. Hopefully I'll be able to pull off something similar in the upcoming 2 years.

  • Intern in S&T - Other
Nov 4, 2020 - 3:51pm

Thanks for creating this thread! I'm also a math major, and will be interning at a BB S&T for Summer 2021 in NYC.

(1) I am very analytical and have strong stats/math/coding skills, but also am very extroverted and love to build relationships. What's your advice for picking some good rotations this summer? Any directions you recommend I look? I'm a bit stressed that I'll only be able to rotate on 2-3 desks, when in reality there's so many interesting desks out there to learn about. 

(2) How intellectually stimulating was your Equity Derivs desk? Are there any exit opps besides prop trading?

  • Analyst 2 in S&T - Other
Nov 4, 2020 - 6:19pm

Hi! Congrats on your offer for this summer! I'll try to answer both questions:
1) First of all, I have to be honest I was not aware you could choose your rotations, I thought they were imposed at most banks but if you get to choose or at least express some sort of interest that's a good thing! Given your profile, you would most likely do well in trading and in sales so if I were you I would ask myself what my long-term goals are. If you think you want to move to the buy-side at some point, go for trading. If you like the sell-side and want to progress to managerial positions, sales will do fine and it can be a lot of fun! If you don't know, that's totally fine and I'd recommend trying out both. Also very important is the asset class you will pick as it is quite likely that you will end up specializing in that specific asset class. You mentioned you are quite technical and good at Maths, I'd look at Derivatives (Equity or Fixed Income) for sure.

2) The Equity Derivs Sales desk I was working on was extremely stimulating, some of the salespeople were extremely technical and taught me a lot about the asset class. I also discovered the world of volatility trading, which is one of the most interesting subsets of derivatives. It's a misconception that Sales is not intellectually stimulating in my opinion. It could be the case for certain asset classes (namely the ones that will get automated first) though. In terms of exit opportunities, it gets slightly more complicated. As mentioned before, Sales is a fun job but it's harder to move to the buy-side, compared to trading positions. That is the reason I decided to go back to school after being in Sales for a full year. The transition from Sales to any other role is not that straightforward so bear that in mind, a lot of people get "stuck" there. But nothing is impossible and networking is definitely your best ally when you are looking at exit opps in general. Prop Trading was my exit but you can definitely go into Hedge Funds as well!

I hope that answers your questions, best of luck for this summer! Try to enjoy and learn as much as possible!

Nov 9, 2020 - 12:02am
abcxrxs_17, what's your opinion? Comment below:

Thanks so much. This was incredibly helpful, especially the distinction between Salespeople and Traders.

Another question- what's your take on quants? Am considering the path since I love to be analytical with data and write code, but that would mean a lot less client interaction and focus on markets. Did the quants on your desk (or elsewhere) see their work as balanced and stimulating, or was it just more technological grunt work for them? 

  • Prospect in IB-M&A
Nov 5, 2020 - 11:04pm

What is next for you? Where do you see your career heading 5-10 years from now? Are there any further exits from prop trading or do most people stay in that industry long term?

  • Analyst 2 in S&T - Other
Nov 6, 2020 - 3:05am

Hi! For the time being, I really like where I am. The culture is great, the work and the people too and bonuses can be really nice if you perform well. I've always wanted to go into Hedge Funds at some point so I think that's still the long-term plan but I'm not in a rush. Prop-trading definitely has exits towards Hedge Funds, certain Asset Managers and other players within the industry. You see a lot of people going into something completely different too at some point, starting their own businesses for example. I would say that the average lifespan in Prop Trading is probably around 10 years and at the end it comes to down to the firm you work for.

  • Analyst 2 in S&T - Other
Nov 6, 2020 - 8:55am

Hi! Fair question! You are quite right when you say that a lot of market-making firms also label themselves as prop-trading firms. Proprietary trading only means that you are trading on your own capital. In practice, the difference is really about whether you take positions (so risk) or if you only make markets and are always hedged (to the extent possible). What you will often see is that market-making firms will have one or multiple desks in which they actively take positions or spread certain assets with each other in order to increase returns on the traditional market-making activities. I hope that answers your question!

  • Prospect in IB-M&A
Nov 6, 2020 - 4:35pm

I am deciding between taking a full time BB Quant S&T (DB/UBS) role versus a Software Engineering role at FAANG. If I am concerned about which role would lead me to make more over the long run and have more interesting work which would be the ideal route in your mind? Have you considered a job in Tech?

  • Analyst 2 in S&T - Other
Nov 8, 2020 - 3:37pm

Hi! Well done for landing these offers! I think the answer to your question really depends on your long-term goals and how much you value your 20s (I assume you're still in your 20s?). If your primary goal is financial over the long run, then I think I would recommend going for S&T. While you will probably make slightly less in the first years, over 5-10 years the curve is steeper in S&T if you include exit opportunities to HFs for example. Personnally, I haven't considered Tech jobs yet as I am really passionate about what I do and I think that nothing beats waking up everyday and going to work to do something you really enjoy. If you're not passionate about the markets, I'd choose Tech 10x over. Your life will also be way more relaxed and fun in the first years. So my advice is, ask yourself what you really enjoy doing (or in 10 years you'll most likely regret not having done something you really enjoy) and keep in mind that your first job does not define your whole career! I hope that helps (and sorry for the late answer), best of luck!

  • Analyst 1 in S&T - FI
Nov 10, 2020 - 11:12am

That's an excellent response! In a similar situation and as a follow-up question: Do you ever feel insecure about trading, i.e. not knowing where markets are heading to and not having the certainty of making money (or at least not losing too much)? How to cope with this insecurity? Or is this something to worry about when thinking of trading as a long-term career? Appreciate that!

Nov 8, 2020 - 4:37pm
Dawg-nuts, what's your opinion? Comment below:

Hi thank you for the Q&A!

1) other than the traditional market making / punting on a side book at your previous bank or current prop firm, do you or your team actively spend time look into systematic strategies or backtest ideas? In particular, I was also wondering if you could give some pointers as to which strategies tends to work well from your experience (no need to go into too much details ofc), I've read things like vols tends to be expensive etc hence it's good idea to short wings and buy near atm which on average makes money, to ideas such as using write off lottery options on a side book / volatility cones / z scores / zeta. Would appreciate some feedbacks from someone experienced!

2) how does banks or prop firm view at applicants with few years of trading experience but chooses to go back to uni (let's say masters in computer science and not mba) for internship / grad program?

  • Analyst 2 in S&T - Other
Nov 9, 2020 - 5:19pm

Hello! Thanks for your questions, I'll answer them in order:

1) Yes definitely! As mentioned in one of my answers above, market-making firms often have a prop-trading twist to their strategy in which they have one or multiple desks trading with the firm's own capital and taking positions. It is quite hard to talk about a strategy that works well all the time because most seemingly successful strategies still load up on multiple risk factors. The answer to that question also really depends on size but in general, spreading ATM volatilities on very correlated names (within sectors for example) can be an interesting strategies. Volatility tends to be mean-reverting and exploiting divergence during earnings seasons or certain market events can be profitable. When you talk about writing off lottery options, are you referring to call overwriting for example? That would be a typical asset management strategy that can fit well if you have a long equity portfolio on the side. Finally, dispersion is my favourite strategy by far but requires a bit more maintenance and knowledge to be executed well.

2) Having previous experience and having gone back to uni will definitely not hurt you, though some banks like to hire "younger". Prop trading firms could find your profile very interesting in my opinion, especially the smaller ones looking for candidates with practical experience and a broader skillset (they often pay very well too).

Finally, regarding the mentoring service here is a link to my profile: https://www.wallstreetoasis.com/mentors/541957 . Feel free to send me a private message or reply to this comment if it doesn't work. We can work on multiple things like CV prep or Cover Letter prep but more importantly we can do a mock interviews or discuss about the industry or any related topics! Hope to see you on there and hope my answers helped!

Nov 8, 2020 - 5:59pm
mahardo, what's your opinion? Comment below:

What are your favorite books on derivatives or markets? Thanks

  • Analyst 2 in S&T - Other
Nov 9, 2020 - 5:24pm

Hello! I was hoping someone would ask me that question! So let's start off with the 3 most famous books about the markets:
1) Liar's Poker by Michael Lewis

2) Reminiscences of a Stock Operator by Edwin Lefevre

3) Market Wizards by Jack D Schwager

Some other books which I really liked:

4) The Black Swan by Nassim Taleb (he also wrote a nice book about derivatives)

5) Flash Crash by Liam Vaughan

6) The Man who Solved the Market by Gregory Zuckerman

If you are looking at technical/theoretical books:

7) Options, Futures and other Derivatives by Hull

8) Volatility Trading by Colin Bennett

That should keep you busy for the next 2/3 days, enjoy!

  • Analyst 1 in Research - FI
Nov 9, 2020 - 10:59pm

Hi,

Thanks for your post - I hope I'm not too late for the party.

I'm in a similar sort of boat to you, just a couple of years behind. I went to a target school, mediocre GPA, interned in a BB (trading), ended up in credit research for a couple of years, didn't like it, so I've come back to school (Computational Finance). I'm aiming for a trading gig, preferably in the electronic/algo side.

What do prop firms look for in a CV/CL? I've applied to most prop firms (Optiver/DRW/Jump/JS/IMC... you name it) for an internship a couple of times now across two application cycles and didn't make it past CV screening in a lot of cases.

I'm currently holding a summer offer for next year in the sell-side. How do sell side electronic trading desks compare to prop firms? I know that both pay and culture tend to be superior at the prop firms, but in terms of a long term career in trading/markets and the ability to lateral/move around the industry, is this still a comparable starting point?

I agree with your point about quant and trading converging. But why do you reckon starting out as a trader is the way to go? Are the front office skillset more useful than the technical skills, or is it just about the difficulty in transitioning towards the front?

Thanks in advance!

  • Analyst 2 in S&T - Other
Nov 10, 2020 - 3:01pm

Hello! Research and trading are extremely different jobs. Personnally, I was never interested in credit but rather in equity derivatives so this is the way I went (personal preference). I think research can be extremely useful if you want to move to certain types of funds on the buy-side but if you are more into quant types of strategies, then trading is a must. I know a lot of people in research, they love what they do but it's just not for me. Personally, I've always been looking for the thrill of the markets and the adrenaline that comes with it, it's also extremely dynamic, fast-paced and working hours are much much better (that's something I value a lot). I would never rank one above the other though and I think you can be fulfilled doing either and have great careers starting out in both as well!

  • Analyst 1 in Research - FI
Nov 11, 2020 - 8:27pm

I found the role a little too slow and couldn't really see the "value" I was adding by writing stories that fit the theme. Also the subjectivity of the research output frustrated me at first, and towards the end of the two years, I could feel myself slacking off and converging toward the median analyst who takes advantage and mooch off this subjective performance metric.

I'm sure this isn't the case for everyone and there are many excellent credit analysis, but I realised it wasn't for me.

  • Analyst 2 in S&T - Other
Nov 10, 2020 - 2:56pm

Hello! First of all, I think that your decision to go back to school makes a lot of sense and will give you another shot (a better one arguably) at the positions you are aiming for. I'll try to answer your questions in order:

1) What do prop firms look for in a CV/CL? The answer depends on location for sure but they typically like to see technical skills and an entrepreneurial spirit (over top schools and 4.0 GPAs I believe). Some firms are big on quant skills, some are big on market knowledge and passion. It's usually about having a strong enough background and then being a good cultural fit. Happy to schedule a session to work on these if you are still applying, I've worked on these for countless hours!

2) How do sell side electronic trading desks compare to prop firms? My experience with this type of desk is very limited so my answer is probably not the most valuable here but from my understanding these desks are essentially execution desks that trade on behalf of various counterparties/clients. Keep in mind that whenever you work in the sell-side you are typically not taking "risk" as opposed to prop-trading firms. Having that experience can be quite important when you want to move to the buy-side. In terms of pay, as you said I think it's usually slightly higher at prop-trading firms, culture is probably a bit more laid back too but you still have great exit opportunities in the sell-side (even better in some cases I would say). At the end of the day, it's about how you sell your experience, who you network with and how lucky you get!

3) Why do I reckon starting out as a trader is the way to go? If your long-term goal is to become a PM at a top Hedge Fund, I think it's pretty much the only realistic way. Again, it depends on your own goals but having actual trading experience is required to move to top positions oin the industry. Personnally, it's also what I enjoy doing the most so I'm happy where I am right now!

4) Are the front office skillset more useful than the technical skills? I think that they are becoming the same over time as front office people are required to be more and more technical. I wouldn't say that the skillset is more useful per se but there's definitely more prestige to it and that helps when trying to move to other firms/positions. By definition, really technical skillset are not easily transferable while front office people tend to have a broader one.

But again, there is no right or wrong answer to these questions and there's always a way to achieve your goals. Luck plays a large part but persistence and drive even more!

  • Analyst 1 in Research - FI
Nov 11, 2020 - 8:34pm

Thanks for your answers. Couple more questions - did you intern then convert to FT at your shop or manage to receive FT straight out of school? Also, is there a large difference between intern and FT recruiting in the prop space?

In terms of interviews, I'm blown out this year, so I'll take you up on the prep for the prop interview/CV when I apply for FT roles next year.

Nov 11, 2020 - 9:03pm
faceslappingcompilation, what's your opinion? Comment below:

as a manual discretionairy (but some degree systematic) rates trader for a number of years...how could i transition into equity derivatives trading?

just google it...you're welcome
  • Analyst 2 in S&T - Other
Nov 13, 2020 - 2:03am

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Nov 21, 2020 - 3:53pm
jinqias, what's your opinion? Comment below:

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