Sales & Trading at a Bank vs Quant Trading
Main point of this post is to try to understand the difference between S&T and Quant Firms.
Seems like both revolve around the idea of "market-making" which is very vague to me. If you ask ChatGPT / Google / YouTube what market making is the whole idea is to execute trades in order to make the markets more efficient.
From my understanding, it seems that a lot of quant firms (e.g. JS, Citadel, HRT, etc.) are focused on market making smaller trades as well as doing high frequency stuff, whereas the traditional banks (e.g. GS, JPM, MS) focus on flow driven trading and high volume trades. For example, if a client wants to buy a billion dollars worth of bonds they would go through a bank rather than a quant firm which requires salesperson, trader, etc. and is very human intensive. Also requires a lot of relationship building, understanding client needs, etc. which a quant firm simply cannot provide.
I recently started seeing Jane Street posting new positions for Sales and Trading specifically and not a Quant Trader. If I had to take a guess, I feel like Jane Street wants to hire new salespeople in order to tap into this space of executing large trades. How correct is this view? What is the difference between S&T and QT? Can Jane Street actually take over S&T desks at these big bulge bracket banks? Also seems like there are newer positions at JS that focuses on trading specific products similar to banks. Is this an indication that JS is slowly turning into a typical investment bank?
But JPM also has "quant" desks as well that focuses on pricing and automatic trading strategies (ATS) and seems to be hiring a lot for these roles. Is this any different to what quant firms do? In 10-20 years, will the function of a global markets division at a big bank and a quant firm be essentially the same?
From Aman's new video (
) their perspective is that the entirety of sales and trading will be soon replaced by quant firms. Is sales and trading essentially a dead career because of quant?How likely is this?
I'll add my 2 cents here based on my experience. Did QT internship in OMM shops people here know, ended up working as SMM trader in 2 BBs, both in Equities and FICC.
First of all, we need to make it clear that "Quant trading" is not an industry. It is just another form of trading strategy that are math/stats driven rather than some discretionary gut feeling(this is my simple version of defining quant trading). So there are many QTs in Banks S&T divisions where the technical skills needed are similar to that of QTs in PTFs. This case we would call them algo traders or e-traders where they work in divisions like CRB/SMM where they own fully systematic trading(a.k.a Market Making) strategies, hedging/execution algo, warehousing bank inventory..etc. It also depends on how we define "quant trading" and by different definition the Vol Traders in the bank/PTFs can also be considered Quant Traders but I'll just talk about Algo Traders here cuz it's my field. Keep in mind that market making concept is just an intersection btw BB S&T and PTFs trading.
I won't explain in detail about how complicated Market Making is..but in very high level you are quite on the right track on difference btw algo traders in BB vs PTFs. While PTFs focus purely on harvesting pnl the banks would have to take franchise mgmt into consideration as well so servicing massive client flow, risk warehousing(as they wouldn't aggressively flatten their exposure as other HFTs do), not to mention regulatory compliance. And this makes their trading mechanisms quite different when it comes to market making
what you asked about JSC S&T, they are same as the Sales Traders in the BBs, and they'd be responsible for executing large flow trades from institutional investors. seems they are trying to build S&T franchise at least in the product space they're quite good at, like ETFs. So they tend to hire many experienced Sales Traders from Banks. Actually, not only JSC but there are other PTFs who are trying to build this business(e.g: Citsec, Optiver, Virtu, Flow) I wouldn't necessarily say they'd take over BBs. They're just built different and there are so many products in this space that I believe it is extremely hard to "dominate" what Banks have been building their franchise at, especially in FICC (You'd need to differentiate between exchange traded vs OTC concepts where quite a few rankings that seems to be dominated by PTFs are OTC traded volume, not exchanges.), and their foundational business model is just different they won't really be same as investment Banks. Let's put Citsec as exception but still they would be another form of "Major Investment bank" rather than taking over whole S&T business. Well this is just a simple view from person with less than 5 YOE in this industry, and I'd be happy to hear different opinion on this issue.
Hope this clarifies a bit
Do you know of it's possible to get into algo trading at a BB without a quantitative degree? Perhaps a different way to signal the quantitative aptitude?
I don't think so. I can't say definitely, it might have been possible during the past, but in this period of low headcount vs high demand, no STEM degree would likely automatically be screened out by HR. I've been interviewing intern candidates in both banks I worked, and all the CVs we received from HR had STEM degree from reputable institution. I think HR uses some kind of their own system to fit candidacy. All team members I've been working with as STEM Masters/PhD with little exception of top level undergraduate as well
Though I wouldn't want to generalize it
Do people lateral from algo trading at BBs to buy-side like Jane Street? Is it hard to do so?
I would say it depends on firms culture. For some firms who hire aggressively to trade various products or pod-like shops like Citsec, Tower, DRW, yes it is possible and quite a few exit. On the other hand there are some shops who has philosophy of only retaining talent from new grad/intern pool, its really rare. JS or 5R would be the latter.
It also depends on the product as well. Would say Rates and D1 has some good opps, while Credit is emerging as good candidates recently
Rarely to Jane Street specifically (never ever seen it) but yes to trading firms in general. Hard without STEM degree, you'd have to win maths competitions/hackathons/Kaggle etc. stuff to convince them you have the skills.
Definitely trading in a Bank
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