Areas of prop trading
I was given a short run down on this industry a few weeks back and it included a few areas of prop trading.
1. Arcades
2. Quant / HFT
3. Market Making
4. Discretionary
I want to confirm if these are the general areas that those in the industry would consider as hitting all the bases and then have a few questions answered.
1. What would you add/subtract from my list?
2. What areas are shrinking / growing?
3. Concerning the outlook of the industry as a whole, is it growing or shrinking?
I am trying to gain a better big picture understanding of the industry. Thanks in advance for your help.
All areas are in play but some are in decline. I would suggest that market making is on its way out unless you are in a quant shop and discretionary is under pressure and scaling back due to legal matters (Dodd Frank) and extensive changes to market structure.
Quant is doiing well, although as volumes continue to fade I think that competition, money making and rule adjustments, especially on the mm side, will move returns towards more "perfect competition" status.
I am not sure about arcades, but I think at least from what I have heard (at least here in Canada) the arcade model is fading due to slim pickings.
The prop model exists but will require some rethinking and a change in market conditions ie higher interest rates (in my opinion). Where the business has more active coaching, training and utilizes some of the better aspects of the hedgie model is where the success will be.
You will note that large firms are moving from the risk model (prop trading) to the wealth gathering fee based advisory model that is immensely profitable and generally low risk.
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