Q&A: BB Flow rates trader
Hi, I feel like WSO was an invaluable resource to me when I was a bit younger, and I'd like to give something back. I thought I would do a Q&A from a flow rates trader's perspective. The industry is probably a bit different than it was even 5 years ago and it might help to have a refreshed view on what it's like to be a market maker/trader at a bank. Feel free to ask any questions you'd like and i'd be happy to answer any questions asked over the next week.
0) how many years have you been trading? 1) what part of the curve do you trade? 2) what are your bread and butter trades? (off the run RV, butterflies, curve, outright, cash vs futures basis, etc..) 3) whats your P&L history? 4) what are your risk limits (what are they, and how are they structured)? 5) what is customer flow like (the desk...your part of the curve....now vs 5 years ago)? 6) do you participate in the newer liquidity platforms (liquidity edge, etc...)? What has your experience been like? 7) do you consider yourself a HFT scalper...or are you playing for larger moves? 8) do you try to be involved in the screens all day long...or do you try to sit back and pick your spots? 9) do you think with the tax advantage of buying for pension funds going away after Sept 15th, will the 10/30yr curve steepen beyond current levels...or is it a non-event? 10) have you seen any large program flows recently (SAFE, PIMCO, etc...)? 11) how many 1st year analysts does your desk hire per year?
Jesus ok, that's a start! I'll answer the few that I think are relevant to all.
0) ˜2yrs, but i've been in the business longer (as an analyst/grad) 1) Across the curve 2) Well I trade swaps. Anything works, forward fly RV, interest rate futures. I'm lucky that beyond what I market make (swaps), I can trade other interest rate futures or swaps if I/the desk has a view. Currently our market making and hedge books have various trades across RV, Macro and basis in different currencies. 3) All I'll say is it's been a decent year. 4) We have delta/basis/spread risk limits across all products. They are large enough that they don't matter that much. 5) Customer flow can be tricky. At certain flow houses it is pretty good business. But there is decent two way across the market that there is still reason to be in the business. Over time though, it is clear that a lot of flow has gone from being more "macro"to more "RV". I hear back in the day you would get decent "no competition" business from accounts that you had relationships with but now a lot of accounts are a lot more price sensitive.
6) Don't even know what liquidity edge is, but the proportion of flow being dealt on electronic platforms is growing. 7) Nowhere near HFT, but a bit of intraday trading in futures/running delta risk from flow + structural or medium term risk 8) We tend to be more reactive than active in the inter-dealer market. That said, if something is off in the markets we will be active in helping the market realize the "true mid" 9) The USD curve is a bit tricky, sure, it can steepen more in the short-term. But I think with ISM near decade highs, unemployment near lows, and with growth almost at 5%, the fed can keep at its path. Obviously there is some geopol/EM contagion risk, but the US front end is very conservatively priced in my opinion. 10) Rather not comment on flows in my space 11) Not hiring at the moment, but we take a couple grads just to do our part.
as a more junior member of the desk, do you have your own back book for your own prop trades so that you can track your personal P&L...or does it all get commingled..and thus...its all a "team effort"
1) STEM major 2) I guess so... I was recruited on campus. Not ivy league.
When do you think spot-starting swaps will go full electronic? When do you think we will get RFQ system for forward-starting swaps? What is your favorite color?
We can't quote spot starting swaps voice as much anymore because of regulation, so a lot of it is going electronic already. Not to say this is a bad thing, not for traders at least. Customers that rely on relationship trading still do exist, and can avoid this requirement by asking for PV markets or forward starting swaps.
We already quote forward starting swaps on RFQ.
Favorite color.... Navy.
1) where do the bulk of your customer flows come from (hedge funds prop trading...entities actually swapping debt between fixed and floating...etc...) 2) what is the minimum capital required to trade in your market, and get access to the inter-dealer screens?
1) It varies in terms of makeup, but HFs are a good proportion of the business (˜50%), which makes it a bit hard to make money from flow sometimes. Other banks/bank desks, corporate and RM flows are the balance. 2) I don't deal with onboarding clients but I think you need a proper ISDA in place which might have a high hurdle.
Silly question but what is "RM" in this context?
How do you guys feel about SONIA and SOFR? I see quotes but have no idea how actually deep the interest is.
Additionally, how developed are SONIA/SOFR rates markets in terms of counterparties and dealers?
I think in SOFR liquidity is not as deep yet (I'm Europe based so less involved in USD basis from a market maker's standpoint), but the SONIA market is very liquid and actively traded by all types of counterparties. A lot of ASW in fact is traded vs. SONIA these days.
Whats you plan going forward? What do you usually have for lunch at your desk?
Continue learning as much as I can, keep pushing the amount and types of risk I'm taking. The best thing about being at a bank is that you look around and theres so much to learn from everyone. Always keep your ears open, try to listen to everything. I'm lucky that I have the ability to take a "decent" amount of risk in anything I'd like within the interest rate space (in developed mkts) and learn from mistakes. My superiors and peers are actually very supportive and happy to provide their input. Once I do this for a few more years and I feel like I'm ready, make a move to a macro fund maybe.
Lunch... Crush, Pret, Leon, sometimes just the cafeteria. Whatever is fast is good.
1) what % of your desks P&L do you think is personally attributable to your ideas 2) what were some trade ideas that you put on that were wrong...why and what happened?
1) This is hard to measure like I said as the books are co-mingled and we are a very flow heavy desk. That said, I think I've been doing a decent job and my risk taking has scaled over time, both in the market making role and on the side. 2) One was italy... this was one of my first "big" trades, and was initially meant to be just a punt. It "got bigger" because italy vol spiked which "increased the VaR"of the position. I wasn't alone but I got long 10yr italy when it was 30bps away from the tights over germany (I had scaled in in small size but it accumulated to a decent size). I eventually stopped out 10-15bp later (you have to understand at the time the vol of this spread was quite low). What happened? It went on to cheapen another 150bps. Now, what did I do wrong? I fomo'd into the trade. At the start of the year/late last year, a lot of people made money just from being limit long periphery as it tightened aggressively. When I saw it cheapen from the tights, despite my better judgement, I decided to get long. At this time all the strategists were very bullish periphery and European convergence in general. I learned a lot from this trade and now that I look back, I feel like a bit of an idiot. My trade process since has become considerably more robust. What did I do right? I'm glad I scaled into it so it wasn't like I was long at the tights. I'm also relieved that I decided I was in the trade for the wrong reasons, stopped out, and left it alone after. You have no idea how many times traders do a trade, stop out, and re-enter almost instantly. What's the point? If I'm not wrong a lot of bank desks and hedge funds blew up on the Italy move.
these types of posts....dissecting a trade gone wrong, and going over the mistakes are some of the best parts of this forum. Got any more?
Its the same trade Corzine blew out on. But that was years ago and much wider.
At its core that trade at the most fundamental level is a question of who the ecb os running monetary policy for. In 2012 they initially said the Germans which turned Italy into a credit risks and under those circumstances they are bankrupt. Then the ecb realized that and ran monetary policy for Italy. The political changes put that in question a bit.
An imperfect monetary union. Granted monetary policy that keeps Italy solvent hasn’t been bad for Germany. It’s not like Germany is suffering high inflation. But for any move in that spread it’s fundamental a question of monetary policy.
2012 some German convinced the ecb to hike rates when inflation really wasn’t that high or even in deflation. A heavily indebted country like Italy that gets deflationary monetary policy would blow up.
For all of Italy’s dysfunction. They are actually quite rich. If you start looking at wealth (assets minus debt) to gdp Italy is fine. But deflation blows up financial stfuctures.
How often are you on the phone, on a daily basis? Do you or your team place large trade orders over the phone? Is miscommunication (i.e. wrong quantity) generally a problem?
Not so much the phone, more over chat. Wrong quantity or some type of miscommunication does still happen from time to time. Not just with customers, but with brokers too. That said it's not really that big a deal and gets sorted eventually. Part of the day to day.
do you plan to go to buyside in the future? if so, how many years would you say is appropriate for staying on the sell-side before getting too old. not sure if it is still likely these days to move from sell-side trading to global macro, but it is my goal as well.
We'll see. If I get to do this job and it keeps scaling I wouldn't mind doing it at my current seat. I am lucky to work with some good people. If I feel like things are stagnating a bit in terms of comp and/or learning opportunities I'd be more inclined to make a move. Also, it is important to work for the right person if you do make the move, so it would be dependent on what/who the role is for as well!
What makes you say that it's hard? It still happens often enough (move from sell side bb rates -> buy side macro or rv).
I just joined a rates exotic desk. It seems to be a pretty niche market and I am a bit concerned if I could ever get out if I want to at some point of my career. guess will find out more about potential opportunities later on.
Do traders have to travel a lot (at different seniorities)? To overseas markets, etc.
Why is your user name “the rapist 1”?
Meant to be Therapist, i tried changing it a few years ago but it wouldn't let me! Therapist1 because Therapist was already taken.
Commodi temporibus laboriosam nihil voluptate placeat numquam et. Rerum impedit ullam nesciunt tenetur suscipit.
Libero in natus nam cupiditate. Nihil odit quo minima sed aperiam. Corrupti tempora quidem omnis consequuntur est reprehenderit. Suscipit officia voluptatem ipsa temporibus.
Officia autem ea aspernatur a optio. Sed sapiente officia vitae aliquid incidunt. Qui id et culpa sed est sit sint. Reiciendis quaerat quia reiciendis beatae fugiat. Fuga architecto modi reiciendis. Molestiae voluptatibus architecto non est aliquid sed ipsum occaecati.
Sint accusantium ipsam voluptatem quidem ut. Quod cupiditate fugiat quia voluptas. Nihil voluptatem consequatur dolor. Amet id omnis soluta cum debitis. Odit magnam blanditiis delectus dicta rem quaerat ipsa. Natus rerum et eligendi ut saepe. Quaerat quo tenetur blanditiis quia cumque velit.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Aut est in ex ab nobis qui. Consectetur assumenda enim quod quis non. Consequatur velit qui eos sit eligendi atque doloribus.