Q&A: Trader at Prop options firm

I've worked on fixed income and equity index options, both US side. There're a overarching set of strategies that can be somewhat cut and paste across products in the options space, but each product has its own vol surface and dynamics depending on why participants access the market (speculation, hedging need .etc)

Compensation can scale very quickly if you prove yourself. Don't want to pose numbers but you can expect quite a bit better than BB pay 1-2 years in.

Turnover can be high for the juniors, which I believe is the case for most trading firms. There's an integrated training program for new hires, after which you go to a desk, and it becomes clear very quickly if a candidate is suited for the job or not. Mostly this comes through in their mathematical ability, their ability to communicate trading decisions clearly and their risk appetite and stress tolerance.

No problem, I work at the european analogy of chic. Have never been to chicago though have always wanted to visit, corona put that thought to bed for a while.

Being in europe and trading US markets means we (as a desk) can trade european flow, as CME and most CBOE markets are open overnight for US. I typically come in, set up systems, see how the vol surface has changed (if it has) and why, and if it's a quiet day, let the systems run themselves. In the meantime I would do some analysis on previous trades, or try to develop improvements to the desk. This can range from excel to visualize trades to writing business cases for new products.

Your risk limits depend on your product, and is expressed in vol and move terms most of the time. AFAIK this is similar across most option MMs, in that they have limited vega and theta exposure and some move limits they have to be within.

1. The answer is it depends. Pay wise I would say there firms (in a good year) pay as much as top tier HFs, which is better as you get to a decision making level much more quickly compared to a HF. The only reason to move to a HF in my opinion would be because I'm interested in trading other products/learning a different trading style (Global maco vs very market microstructure focused, currently)

2. To beat a dead horse, it depends on the firm. Some firms are very quantitative and hire a big chunk of their cohorts (or exclusively) from CS grads. AFAIK (and this is flimsy, as I've only worked at 1 firm) firms like IMC and tower go for more quants, and other firms like to hire traders who are better able to judge the market. I would say everyone's on the same level, we actively discourage traders from feeling superior relative to other functions as they are crucial to the firm.

Unfortunately I can't give you a solid answer as I've not worked in a bank before! But I can give it a shot.

Bank based MMs are probably more selective in the flow they see and trade. Banks seldom have their quotes on screen, and provide quotes mostly to prime customers, whereas for MMs we are almost always there on screen, so we participate in a far higher amount of trades and capture more edge as a result. However, that relation to prime clients mean you sometimes get very lucrative trades that the rest of the market doesn't see (via blocks), so there are upsides as well.

1. Yes, afaik shares are only available to employees and a few select outsiders. It's a perk, but not a great one. Shares are not as cheap as they were 10 years ago and are priced more in line with listed firms (and there's no reason for the seller to not do so). There's an illiquidity discount priced in but I won't say it'll make you mega rich.

2. The other reason why it's not great is because in my opinion it makes you too all in in the firm. If you believe strongly in the firm and have extremely high risk tolerance you can, but after seeing Knight I wouldn't go all in.

3. This is difficult to answer (as I'm not a partner!). Better have someone more qualified on this forum speak about it.

4. It depends on the firm. Some firms pay based on how your/your desk's PNL is as a %, some firm pay based on how the company is doing globally. This is also influenced massively by market circumstances and your specific situation. If your responsibility was to build a desk in a new product, you may be judged by how the desk is developing for the first year or so rather than direct PNL generation.

5. I would rather do something else, although that's not a reflection on my current firm. Trading is a great love and I don't think I'll ever go away from it, but it can also be very draining managing your position everyday, doing business development, risk management, interviews and all the other stuff that's ancillary to trading. I would probably want to do a startup while keeping trading as a side hobby, but that depends really on your attitude toward life.

The ability to clearly and concisely explain why you have done a trade/made certain actions. Certain trades, while they are positive expected value can go against you, and it's important to make sure you are able to explain to those around you why you think you are right and whether you should increase the size of the position or whether you were wrong and you should hack out of it.

Stress tolerance, it can be extremely stressful sitting on a big position and we want people to be making rational decisions during these periods of time.

Don't be an asshole. This should be obvious but even if you're smart, being a turd is a big no no in terms of having people want to work with you. No one works alone in the company, and being able to work well in a team is crucial.

Buy a Low fee index tracker. you Literally have no edge as a retailer, so you should trade like you have no edge.

It's not a major part of the job; its importance in the interview process serves more to test your numerical literacy.

They're smaller outfits so they trade smaller size/less products, but what specifically are you looking for with this question?

To be honest I won't know the details as I've not worked at a bank. Maybe someone else on the forum can share their insights.

My two cents worth though, banks have been pulling back from Market making over the last few years because of regulation, which (together with the big rise in retail) was one of the reasons why firms like citadel become so successful. Unless the current regulatory climate changes, I wouldn't want to start at a bank as it feels like you'll always get more and more restrictions placed upon your activities by regulators. You also get much more exposure at a junior level at these firms compared to in a bank, which helps in your personal development.

Culture wise the prop firms are also less bureaucratic as these are organizations with much lower headcounts, although they are perhaps harsher in terms of firing. In terms of moving from one to the other, there are, but I won't be able to give exact figures like this % of people after x years move from a prop firm to a bank or vice versa.

i have experience in both side. 

sell side more focus manage risk. don't really take views. can't bet. better job security but very boring job.

buy side willing to take risk at a cost. you can bet. 

Are you in the US? Fairly sure these companies have only started extending offers for positions not based in the states but in Australia or Europe.

I think they're all about the same in terms of hierarchy. Some will be much stronger in certain products, and they have different trading styles and ways to make money off the market.

If you have multiple offers, congrats. What's more important than prestige is probably whether you can find/already have a good mentor at the firm and whether the trading style of the firm, and by extension the work you will be doing, fits your skill set and preference.

Ronin is the big one that shut down because of March. Team wise US fixed income generally had a pretty bad half (both treasuries and eurodollar)

Ronin was the biggest casualty firm wise. Strategy wise some dispersion and fixed income (both treasuries and eurodollar) got hit quite hard.

I would be very skeptical about a retail trader coming and saying they have a consistently profitable strategy without being able to explain why, systematically, his strategies should be generating these profits. Nothing on you personally, but there exists a bunch of strategies have a median PNL that is positive but have a flat to negative mean PNL (generally those that sell tail events) . If you're convinced about your strategies though, there are firms like First NY that give you leverage and reward you with a portion of PNL.