RE: Prop/Quant Trading - Why is it not as big a target as Investment Banking?
Hi everyone,
I'll preface this by saying I have only just come across the subject but, like many on this platform, was initially inclined to investment banking as I was interested in pursuing Finance and it seemed the epitome of this field. But as I read more into the roles within the financial services , I came across Quant trading firms - who's roles I've actually found to be quite interesting.
I was wondering why such a large number of undergraduates are instantly geared towards investment banking compared to the likes of Proprietary/Quantitative Trading roles.
From what I can see:
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Much better WLB (as low as 40-50 hours I've read; of course can vary).
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Much better remuneration packages (1-200k+ out of undergrad).
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Equally as stimulating work (if not more stimulating than that of IB).
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But IB tends to hold larger prestige of the two.
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I presume IB has a higher upside (i.e. if you reach MD - but what's the career progression like in Quant?)
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(and if I am wrong on anything/miss any other conclusive points, let me know).
I presumed that this may be because of:
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The largely Mathematical nature of work.
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Highly competitive nature (I guess similar to IB - except you now compete against Maths Olympiad winners etc.).
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Low number of firms compared to IB or Corp Finance boutiques etc...
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Potentially a hard to retain job? (unsure - looking for opinions on this).
I'd love to learn what knowledge is needed and what skillsets differentiate model candidates for an IB summer analyst role versus a summer analyst within Quant Trading.
Feel free to let me know your thoughts below, too.
P much every decent IB pays 120-250k USD out of UG. Quant firms are closer to 400-600k.
You pretty much gave the answers though; the other point is that these firms just aren't as well known as a household bank
Hi, thanks for confirming this.
As for salaries, I wasn't aware it was this high as soon as you come out of undergraduate (I'm UK-based which may be why). Do you know if the salary range of 400-600k usd common across EU too?
Also, could you please speak to what a model candidate intern looks like for quant trading? Looking to get prepared so have decided to focus on building my Maths & Probability/Stats knowledge so far. Familiar with brainteasers, generic interview questions, motivation etc.....
But, if there's something else I should pay attention to aswell, would be grateful if you could let me know. Thank you!
study maths at COWI
Pretty much 99% of people on here do not even have close to the math skills required at these prop shops lol. IB is selective, but quant is a whole different level of selectivity
Yeah it’s merely a skill gap, IB requires basic algebra whereas quant requires a math major at the very least…
Quant does not require one to be at "least" a math major. Although it doesn't hurt to be one.
Any STEM is usually good, then if your STEM degree is not in computer science, you should probably also get a masters in computer science.
Quant typically requires advanced knowledge of statistics/game theory, computer science and programming, and just overall a very different skill set than the basic accounting and valuation needed for IB.
In terms of Statistics/game theory/programming can you elaborate on what relevant skills they pick up?
I understand a language is imperative to even try land an internship (i.e. knowing Python), but what would you do from here to develop on that language knowledge to hit all the other boxes in programming? Will show an example below.
To get a better idea of a model candidate's profile, I pulled this from Citadel's 'Quant Research' internship listing:
The underlined responsibilities I'm not so sure about how to develop as a non-CS intern/feel are quite vague i.e. Data-driven research environment - can this be something as simple as a thinktank? Running your own Substack to create case studies?
Was wondering how prior non-CS interns developed the programming/database relevant skills to even apply - so I was in the process of reaching out to some to try get an insight. But would you be able to expand on any of the above?
You can learn the fundamentals needed to get a IB seat in 2-3 months essentially . Quant and the better S&T desks require a lot more math . Besides that , there are less seats so even harder
Thank you for the input. Could you please define what the better S&T desks are?
Rates vol and equity vol are typically the most quantitative S&T desks and usually will take the smartest interns
Quant firms mostly hire people with backgrounds in maths, CS, physics, etc. People here mostly have Finance backgrounds. It's not relevant to them.
Is it solely STEM recruitment into Quant or can Finance undergrads break into Quant?
"Quant" isn't just one field. If you mean quantitative research, they take super target maths PhDs so finance undergrad has no chance. Quant trading typically screens for any stem undergrad from a top target, but that is just primarily for screening purposes. You need to be really good at mental maths, and not the mental maths on IB aptitude tests, think complex probaility questions. I've seen people from econ break into QT (rare), perhaps because they do a decent amount of statistics and programming in their course to understand algo trading and are smart enough. And finally software engineering at quant firms obviously mainly recruits CS grads.
Cuz there's a (very real and pervasive) barrier to entry to prop/ quant trading whereas IB has none lol. And this was a very real consideration I had when I was recruiting for IB - was thinking to myself, I'm recruiting for this cuz I can't do quant
Considering this at the moment, prior undergraduate at the minute. What sort of barriers are there to entering quant?
Lol, without even going into anything else, just the fact that quant requires a STEM degree while IB takes any buttfuck degree lol (provided it's from a target). AND not just any STEM - things like math, CS or physics will always be preferred over things like biology or medicine.
And just the fact that you actually need to be smart for quant lol
Because IB and Quant skillsets are entirely different. Additionally, the mathematical rigor and focus on programming mean the same people qualified for IB are most likely not even passing the resume screen for any quant firms.
I see you said you have only just come across the subject so I won't go after you too much here, but your assumptions on IB having a higher upside and IB holding more significant "prestige" (which is a stupid metric anyways) are wrong.
I don't know of a single person within the industry who would say IB at X bank is more prestigious than PM at Citadel/Brevan/P72 or Trader at Jane Street - these are usually the exits haha.
What does prestige even mean really? An admiration of the exclusivity, reputation, and influence someone of a certain role embodies?
PM at Citadel/ Brevan or Trader at JS is literally MORE prestigious than IB lol, hands down. Bankers literally try to break into those places from IB
What incentive do they have to take on such ex-bankers, applying to the likes of JS/Citadel, into their firm if they haven't been conditioned as heavily when entering the world of IB (i.e. could graduate with a Classics degree at target, know accounting and valuation technicals, etc).
Yeah my bad - only really looked into IB so far so only really aware of MD-esque salaries. Could you talk to me about the hierarchy & salary within Prop Trading?
I guess prestige is (for me) something that embodies the influence, reputation & splendour of a person's industry to the average joe. It was one of the few good things I could think of for IB > Prop Trading lol.
What would you suggest as someone interested in breaking into this industry? What university choices (I was interested in Econ - but understand STEM focus is better), what technical/skills would I need to learn etc...
Thanks
That's the thing at prop trading; there are few hierarchical roles here. Some firms sure you start out as a "Junior" Trader -> Trader -> Senior Trader - Head of Trading. Most of the best shops if you look at it all have the same title -> Quantitative Trader/Algorithm Developer (HRT/Jump/HFT shops).
What this should show you is that if you make a ton of money, it doesn't matter how old you are. You will be compensated in turn by your bonus or another shop will poach you. Good traders at prop firms WILL get paid, or they will leave. One data point I had was Flow Traders in 2020, a trader 2-3 years out of college on a top-performing desk got 1.1M+, and on another desk same YoE a trader got a bonus of 5K. I understand 2020 was a record year for most shops, but this shows you that it is very very meritocratic. You make money you get paid.
If you don't get paid, you leave for a new shop and get paid there. If you think you fit with the HF side or you have a systematic strategy, maybe you leave for a HF and get a literal % cut of the P/L you generate typically 15-30%. Tight risk limits though. Some shops will half you capital at X % and fire you at Y %.
Just gonna talk about traders at reputable prop shops (who are also all market makers). Optiver/SIG/CitSec/JS/etc.
There is no comparable hierarchy at prop firms. There is a desk head who is more of a manager than a trader (although they do still trade here and there) and then a bunch of traders on that desk/team. Desk heads usually have 5+ YOE while traders can have anywhere between 0 and 10+ YOE. A lot of traders don't want to be desk heads because they would just prefer to trade rather than having to manage a team which would include working with devs, research, HR, etc.
Your "grad" traders are just your fresh traders and they will have the same base as the guys with 10+ years on the team. Base salaries at reputable shops are I would guess around 100k for the low end and 175-200k on the high end for traders. Bonus can be anywhere from 0 to 1mm+ depending on your performance. Seniority does not come into play much and you will see senior guys get 50k and 3rd years get 500k+ if they perform that way.
At the top shops bonuses are mostly still discretionary so overall firm performance and your perceived value to the firm still play a big part in how you get paid. Obviously pnl is king and if you perform you will get paid but don't expect to negotiate a % of your book or something at the top shops unless you are very experienced.
There is no real concept of "prestige" in this industry other than how good of a trader you are and how much pnl you generate. Big firms have more traders and more resources to throw at any opportunities they find so that is a big advantage of working at one of the top firms. But at the end of the day if you are a good trader everyone will know (because you're taking money off them).
>90% of the grads I see are bachelor's from target schools in math/stats/cs/engineering. All you need is a solid grasp of 1st/2nd year stats and some coding. Coding is not 100% a requirement but it's quickly becoming one and to be honest it's a very useful skill in trading (and many other roles). Throw in some PDE's if you want to trade options but even then a basic understanding is all that's required.
The effort / brain power to pass an IB interview is minuscule compared to Quant.
That's the reason they pay so high is because only a few people can pass it and to reach that level, you must have a rare skillset.
I think people here have already answered your questions well. To people in the know, prop trading at a good firm/desk is more prestigious and pays better than IB. But >90% of the general population has never heard about it. If you want to break into quant your first step should be doing research on WSO and reddit instead of asking questions that have been asked 20 times a year for the past 10 years.
Aside from what's already been mentioned, in some countries these prop firms and HFs that heavily focus on quant trading barely even exist. In my country, prop trading firms are just some small companies scamming people without degrees that want to become rich through day trading lmao. HFs are either exclusively running fundamental analysis or their quants are just automatizing some process related to trading, not anything super prestigious like HFT(High Frequency Trading).
Obviously, for the US and most of Europe the other comments are more in line with their reality.
Lmao at 100k-200k. Comp is way more even for just first year
Someone above has stated 4-600k - but feel free to correct instead of "lmaoing".
Salary is much lower in UK (around £200,000 all in on average for a first year at a top shop), with firms mainly recruiting Maths/CS students from Oxbridge/Imperial and somewhat less, the LSE, Warwick and UCL. Still ridiculously high relative to other jobs.
However, is less competitive. Despite this, I have been told that those who get in are normally more interested in the work rather than the money, unlike IB. Let's' be real - a large chunk of IB applicants do it for the money. This does not work that well with quant, as you will likely never be able to catch up to those genuinely interested in the work, reducing alpha and therefore compensation.
I myself will be applying for spring weeks etc to see if I find it interesting, but will not 'chase' it unless I am literally buzzing to do more. I recommend you do the same.
Interesting, thanks for your info.
When you mention "mainly" maths/cs students, do you know what other disciplines (of STEM I'd assume) would they recruit from outside of this?
Though no doubt the money is amazing across Quant/IB, I think the work is much better than that of IB (which is what I was initially inclined to). The buzz came from wanting to see how Mathematics is applied in real-life finance, as I loved Economics but this is quite new to me. I wanted to really explore it through an experience, but also not going to university just yet. I agree with you that if you don't enjoy it you won't do well at it (especially in a role like trading where it is literally your job to make money), just a case of figuring it out at the minute.
Physics, Economics (this will be super exclusive to Cambridge/LSE I imagine, as I've heard their courses have lots of mathematics) and Engineering (particularly EEE, but have also seen mechanical). MAYBE data science too (e.g. at the LSE), but not sure.
Essentially, the more maths / computer science the better.
This field is much closer to SWE than to IB
I'm currently at ICML, and there is a career fair going on, too. The finance world is represented by D.E.Shaw, Citadel, PDT Partners, Jump Trading, 2Sigma, and Jane Street. They're talking to PhDs that are coming from the CS, math, physics, astronomy backgrounds. No knowledge of finance is necessary.
What is necessary is understanding that a given dataset has value and allows you to predict how corn features will move in the next two seconds. If a strategy around it is feasible, you backtest, and productionalize (do finance majors understand this term, btw?) it. Being able to research and come up with novel ideas is the ultimate requirement. This is what you learn when you pursue "hard" sciences (especially old ones, like pure math, where a lot has been already discovered, and one needs to be really creative in their pursuits.
As you see, it has nothing to do with 200 IB questions.
Astronomy backgrounds - really?
How would you go about learning the second half of your response (dataset, 'corn features' (unsure of this term), & in what terms would you suggest researching/developing novel ideas (wondering how to do this in my own time as not currently in university).
I'm sorry: been working too much with "features" and not enough with "futures" -- I obviously meant to say the latter (and now I cannot edit the post anymore).
Yes, astronomy is really really applicable. Teaches you how to think about things that you cannot necessarily imagine (like N-dimensional spaces).
As to what to read about it: AQR has materials (you can subscribe); CFA level 2 has a chapter about backtesting and simulations;
Because you can't finesse your way in like IB. The culture is different. Stem kids are passionate about what they do not how much they make.
Went through the IB recruiting process (unfortunately didn't manage to convert any of the processes to an offer), going through the quant (trading, not research) recruiting process, here's my two cents.
Comp:
If you're at a reputable quant shop, your all-in comp can be around 3x IB. For example, Jane Street and Five Rings advertise their 300k USD base salary on their website
WLB:
Quant hours are like 8:30-5, there's really not much to do after markets close. Which means half (ish) the hours of IB
The work itself:
If the interview is somewhat comparable to the work, trading is mostly intellectually stimulating, because market move quickly and you need to be reacting to new information. IB, at a junior level, is mostly busy work, and at a senior level, is mostly sales.
The people:
People in quant pretty much come exclusively from maths, physics, engineering, CS, and around half have grad degrees, so most people are fairly nerdy. In banking, people are usually more sociable, although this might have changed in recent years.
The recruiting:
The banking process is infinitely easier than the quant process, even though I will say the networking portion is very time-consuming and draining at times. But from what I understand, the networking is much more intensive in the US than the UK.
In terms of why it's less of a "target", part of the reason is there are far fewer seats in quant, and assuming that you're an econ/finance major, you'll see far more people going to banking since quant doesn't really take people from these backgrounds.
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