Derivatives vs. Fixed Income vs. Equities Trading
So, typically derivatives > FI > equities in terms of quantitative skills demanded. But what about in terms of median comp (roughly). Is one generally more lucrative than the other?
So, typically derivatives > FI > equities in terms of quantitative skills demanded. But what about in terms of median comp (roughly). Is one generally more lucrative than the other?
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I dont think you understand the products tbh.
FI encompasses fixed income derivatives and Equities encompasses equity derivatives. Derivatives isnt a seperate asset class, merely a type of product within the asset class.
Well, I was told that derivatives trading (especially exotic derivatives) tended to be more quantitative than trading bonds.
Anyway, does anyone know if there is any difference in terms of typical comp?
Of course it is, but I was just tryin to make sure you understood that fixed income encompasses the exotic derivatives. Exotic derivatives by itself doesnt mean anything, its the asset class the derivatives refer to, which can be FI or Equities. Cash bonds and Cash equities are only a small part of each asset class.
Your question was pretty much answered by the poster above.
If you were to stay on the sell-side for your entire career, you would probably make more money from trading derivatives than from trading flow products. That said, if you're looking to move to the buy side, there are far fewer shops that do, say, volatility or convertible arbitrage than, say, equities l/s or global macro. As such, the exit opportunites to the buy-side from sell-side options trading are fewer (not necessarily worse, just fewer).
If you are going to trade equities, cash equities is a commission business, so you want to trade prop or make markets in single stock/index options. If you are in FICC, once again, the more complex the product mathematically, the more the traders tend to make.
As a trader, you only have a few career paths:
1.) Advance within the management chain of the product you are trading. 2.) Take more proprietary risk in the product you are trading. 3.) Move to trading a more exotic (less liquid) product. 4.) Get out of trading.
Generally, the more risk you take, the more money you (possibly) make. That's basically the CAPM. Derivatives are inherently more risky than flow transactions, and proprietary risk-taking is generally riskier than market-making (since you're not really looking to keep most positions in which you act as a liquidity provider, and you have the bid-ask spread to buffer your losses should you incur any).
I'm not interested in compensation, so much as understanding working hours. I'm going to take a very simple guess and say that the more illiquid the derivative (whether FI or E), the more time required at the desk structuring it, clearing it with legal, and letting the client run their DD. This sounds like it's close to banking hours. Which FI desks have similar hours to listed equities' markets?
very true...add fiscalists, and a little more legal (there is alot). Close to banking? not quite 7 to 7 MAX...otherwise normal day is 7to5:30 if your closing a deal, you stay longer, but its worth it
FI desks with similar hours to listed equities:
1) Spot FX (these guys are typically FIFO on the floor) 2) Govies 3) Commodities
The more risk you take, the more money you potentially make.
But at a BB, unless you're the "prop desk", your job is more to market-make than to take on large amounts of risk. You're making most of your money off of spreads, not on the direction of the security.
That's why many desks are looking to make their delta = 0. We don't want exposure to the underlying. We want to build up an axe and make our killing with the spreads.
Equities vs. Derivatives trading (Originally Posted: 05/03/2013)
Why do the BBs and institutions seem to have more derivative traders than pure stock traders? I currently am doing proprietary trading, and noticed how my friends from HS/college who did trading pro at one point were NOT trading stocks. Is this going to be a problem for me if I try to exit?
Derivatives are more lucrative. Equity traders are getting shoved out due to automation. And Son, you have no exit opportunities as a trader.
The derivatives business is just larger, which is natural when you think about it. You might have one trader for a certain cash sector (usually these days one trader covers multiple sectors), but then derivs you have a team doing single stock flow, then index flow, then a team doing light exotics, then another doing hybrids, you have guys doing convertibles, the corporate desk, structured notes etc etc.
The cynical answer would be that it's much easier to rape a naive client by selling them an equity-linked, quadruple no touch with reverse knock out digital power dual currency note. There's also a lot more bid/offer in it compared to a plain vanilla product. Hence, there's an incentive for the banks to obfuscate and complicate. Then there's also the demand side. The not so cynical answer is that derivatives give the client the precise exposure they want, which is what people want. To provide such flexibility you need more people.
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