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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Thanks for doing this. Have a bunch feel free to answer whatever..
How much progrmaming do you actually use now while working full time? Is python useful for trading or would excel be best?
What are some trends that you see with fixed income as a whole?
How difficult was it recruiting full-time without a return offer? How did you spin it when asked?
Why didnt you get a return offer? Anything that you learned/advice on what you would change to make sure that you do?
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.
1) how many traders work in your group/desk? 2) do you have your own trading book? 3) if so, what is your pnl stop? what trading strategies have you been taught? 4) what is your desk edge? how do they make money?
1) ~8 at my local office withanother 3 teams globally. 2) Not yet. Hopefully one day:) I do help with hedging and contribute to PnL, but I'mnot managing a book independetly. My desks have relatively complicated products&structure, so I guess it will take me longer to actually manage one. My friends who are on flow desks do get small trading books start from their 6 month-1yr or so. 3) can't say 4) Most of the traders on my desk are experts in technical stuff (exotics products) and are fluent in coding to boost efficiency. They don't make markets, but are rather managing portfolios of credit/rates/fx exotics combing with vanilla trades. They like to find the most efficient/cheapest hedging tool from all above three related products. But the secret to how they make money? Years of previous experience on flow desk (understanding of the flow and markets) with solid product knowledge and technical skills, which I could hopefully learn from:)
Does your group Summer Associates (MBAs). If yes, what is the recruiting cycle like? Thank you.
Honestly, I think it's getting rare to see summer associate from MBA Class. I do see an experienced hire who came from an IBD Background, did her MBA, then transitted to a Sales role. Nor sure if it worth it...
Im curious to hear why you dont think it's worth it. I will be doing IB out of my MBA but hope to move to a sales desk down the line. I appreciate your insight.
ex-rates into commodities guy here
Are you at a bank with a large balance sheet?
How big is your desk?
How much programming do you do?
Did you ask for rates or were you just placed into it?
How many people have left that group?
Are you planning to leave (either buyside or tech?)
Are you in NYC?
What’s compensation progression like for a trader at a BB compared to prop shop?
Again, don't have any experience in Prop Shop, but I've seen crazy numbers start from VP to Director and also small numbers. Anything could happen... It just depends on the year, your desk, and your personal PnL/contribution.
What was your first day like? What were some things that you already knew/ had to learn when on the desk? How long did it it take you to feel up to speed? Hours and schedule throughout the day?
whats your expected total comp as a 2nd year analyst?
At my 1.5yr point, got 16.5. Don't have any expectation for this year end but did receive top mid-yr reivew..so let's see...
16.5 as in 165k usd?
Hope you are having fun today - that is all.
hey, as someone who is pursuing a mfe, do you see a lot of mfe-grad traders? in addition, what product do you recommend in fixed income to get into?
Yes. A lot MFE in quant side. My desk is full of MFE and engineer too. I can only say, may be try to find more structured products within fixed income - ways to avoid being replaced by machines:).
Thoughts on Jerome Powell?
1) How do responsibilities range as you go up the hierarchy scale ( say analyst more research numbers -> VP /director client relationship/sourcing deals/structuring etc).
2) Did rates desk choose your or you choose it (did you recruit for it). If you did was it because you rotated on it and like the work/product or met a teacher like you said working on a rates desk?
3) I am considering rotating on a rates desk this summer, math undergrad with experience with finance. Any books I should read up on that helped you?
4) How would a low rate environment differ from a high in your opinion, I feel like I will see interest rates bottom out then rise over my career but who knows
Fabozzi or Tuckman fixed income books will give a good background on fixed income product knowledge - strongly recommend. While nobody will tell you they are required, if you've read these and understand all the content, you will look like a genius compared to those who are unprepared. I don't recall if they talk about delta and gamma hedging...for that there is the classic book on Derivatives by Hull
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:)
Can you explain how you built your intuition for the direction of yield curve movements? I've been reading up on yield curves and it seems there are no satisfactory decomposition of yield curve drivers (at least with public academic sources from the fed), only attempts to breakdown movements into slope, level, curvature which are more descriptive in nature instead of causal. It's not like you can have some edge digging through 10K filings like a stock and identify a catalyst, so how does one get a sense of the direction rates are moving?
I personally thought it is still a psychological game (market/traders's expectation vs fed action, irrational vs rational etc). We do make sure we are keeping track of risks per tenor, but don't do any technical analysis on it... Catalysts are for sure the macro events (oil, virus, trump, fed announcement, unemployment and inflation), you can surely sense something by digging into it, coming up with a unique view, or just try to react faster than the majority of the market (competing with HFT). You do sense a cycle though - as I answered 2 weeks ago before the fed emergency cut...we were already discussing the negative rates scenario in US at that time...
Did you do any trading yourself before joining a bank? As in currency pairs or something of the sort? If yes, could you elaborate on your trading process?
I dumbly traded equity markets in the good days an beat the benchmark. But I believe it was only luck. Well in my internship, I did "trade" simple FX (spot) in the simluation game and won the 1st place. Those are from educated guess (Central bank policy, dollar main trends, major hot topic/market movers, desk flow etc), and I can't say if it showed an edge or is mainly from luck again. Well but it did inspire me to be a trader.
Dumb vanilla guy checking in. I imagine this has been a busy week – thanks for taking the time and appreciate any color you can offer on below topics. (edited because formatting was fkd)
Rates, FX, and credit seems like a broad mandate for a single 8-person desk. Is this standard in exotics? (If you wouldn't mind naming a generic handful of the type of products you trade, would love to ask some more specific questions)
How much lateral breadth does a single trader assume on an exotics desk? Like are you trading EM CDX curves one minute and switching to a G10 cancellable bermudan or whatever the next? (Sounds intimidating for a junior!)
What do liquidity and product demand look like in the credit derivatives space? I don't work in credit, and everything I've read on things like default swaptions, recovery locks, etc is pre-crisis – curious to know what state of the art is today.
What important figures/stats do you pay attention to on an exotics desk that your colleagues in flow, sales, etc wouldn't necessarily? Vol cubes, gap risk, prevalent barriers on the street, etc come to mind, but that's a shot in the dark.
You mentioned that your desk edge comes from being "experts in technical stuff." My understanding of the space is that it's a pretty small club, where everyone is an expert. Are you generally extracting value from spreads taken against client trades, or attempting to successfully trade directionally on exotic risks against similarly sophisticated counterparties?
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.
This is incredibly insightful. Thanks so much for doing this! A few questions I had:
1) How did you go about learning python to the point you could apply it to your work flow as you became full time? Did you work on any finance related python projects before graduating?
2) Since these are OTC products and there isn't a lot of price transparency, how do you value the positions (also the risk) ?
2a) Adding onto that, as a trader how do you know what the right level to trade should be? Do you have to rely on the swap data repositories information? I.e. have SDR on your BBG up all the time to make sure the executed prices are proper?
3) How do you keep track of inflation and does that only usually impact the rates/fx products?
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