Equity Derivatives Broker

Drifter,

Great post. I have a few follow up questions.

What is the job security like in IDB? How do you think the industry will change over the years (is it shrinking/good place to start?) and where can you potentially move from IDB?

@Drifter: When you say IDB, are you talking about IDB in terms of being an interdealer broker or being a traditional Institutional Equity Deriv Salesman?

@Drifter, what's the success rate of interdealer brokers such as the equity derivative brokers that you talk about?

1. When you say IDB, are you talking about IDB in terms of being an interdealer broker or being a traditional Institutional Equity Deriv Salesman?

Strictly interdealer

2. What is the job security like in IDB? How do you think the industry will change over the years (is it shrinking/good place to start?) and where can you potentially move from IDB?

Job security in IDB is much higher than working for front office sell side, traders will be lose their jobs way before IDB brokers will. Exchange trading definitely affects the IDB market in more mature and liquid markets like the U.S and Europe. For lesser developed markets like Asia and emerging markets where liquidity is still an issue, IDB is still thriving. IDB will never completely disappear because there will be products that the exchange will have trouble standardizing, IRS for example. IDB is good if you're entrepreneurial and outgoing. You won't have a proper training program or knowledge support from research (not too important) what you receive is what you put in. Few exit ops exist for IDB, you usually have to have a very good connection with someone and use that to transfer to a junior role elsewhere. Most people do IDB and then retire into something else, opening a restaurant etc.

3. @Drifter, what's the success rate of interdealer brokers such as the equity derivative brokers that you talk about?

The answer is relative to your definition of success. Confirmed rainmakers, people raking in millions per year, are 1-2% of the IDB workforce. 500k+ (10%), 250~500k(30%), and rest make less than 250k. All this is total compensation.

Hey do you have any desks that you reccomend? I was thinking options or treasuries. Do u have any advice on those desks?

And hoogerman, how many nights per week are you talking about?

Thanks in advance

Q: Great post! You compared job security of IDB to traders at banks. How does job security for IDB compare to salesmen in equity/equity derivs at banks though? I like the sound of IDB, but I'm not too keen on moving to NY.

A: The pecking order for job cuts goes like this: traders->sales->research->idb brokers. But like any job in finance, a big f*ck up will result in instant job loss.

Q: Hey do you have any desks that you reccomend? I was thinking options or treasuries. Do u have any advice on those desks?

A: For someone new to IDB, join a desk that is liquid. Fixed income and FX desks are good examples. You will get exposure to what general broking is. Less liquid desk like exo products or emerging markets requires you to be a little more savy, so not the best for a noob.

Q: how many nights per week are you talking about?

A: If you're young and starting out, usually at least 3 times a week. Once you're more senior, it's 1-3 times a week.

6M USD base...sorry I find that hard to believe. A guarantee, perhaps but even that seems farfetched. Have you heard of any CEO at bank getting more than 1-2m base?

Hey this is a GREAT thread on IDB. Since we're on the subject, I figure I can ask one more important thread about the industry.

I was wondering how a person get clients to deal with. While searching the other forums I have read about a guy who had a senior broker essentially pass over his book, and received his clients that way. However, I am assuming that you also have to go out and find the people in the market. I was hoping to hear another person's view of how brokers receive clients (do you have to essentially "know" someone in the industry beforehand?

Also, how do you think the new regulations may affect the IDB market?

Thanks in advance

@hoogerman, googled it and nothing came up. Not to sound insulting but I find it hard to believe that anyone at GFI is receiving 6M base in this market, especially when they just shut their Tokyo office this month.

@TraderDaily, equities and equities related derivatives in the U.S is very liquid on the exchange, so there is no advantage to trading in the IDB, guys dealing in these products are closer to sales trader at a bank, except with no research and sales support.

@my man, as a junior you will be helping out the senior guys (picking up lines when they're on the phone, covering for them when they are off, etc.,). That is how you'll get your initial exposure/introduction to clients. Eventually you will meet more faces in the industry as you go out, attend events, etc. If you're lucky and patient, you will inherit a senior guy's book when he leaves, although this rarely happens. In the end, you just need to make a good impression on someone, I've seen brokers lose accounts to other brokers because the trader didn't want to speak with them anymore. The best case scenario is you have a few trader buddies who grew up/went to school with you, then you're really in the money.

Volcker rule will not affect IDB, it will only affect prop desks at banks. IDB's don't talk to prop desks because of conflict of interest. Most prop desks go through their flow desk, so if a prop desk goes directly to IDB it takes business away from the flow desk and ultimately will result in less business for that particular IDB.

I interned at one of the Top 3 Inter dealers on their equity desk and have been with my current shop for 2 years where I am a salestrader.

In terms of the pecking order the first person to get hit is actually the broker because when clients are getting hurt they cut brokers or cut the rate they are paying them.

The Tradition/GFI fiasco was an example of top of the market at its best.

Salestrading at an interdealer is very hard because you do not have the infrastructure/support of analysts/research. Drifter gives a great explanation of explaining what market color is and how its used.

The bottom line is unless you are a FANTASTIC networker, know your markets, and not afraid to pick up the phone you are going to fail miserably. Getting clients is not easy. For any of you buysiders out there reading this why dont you chime in and talk about how your relationship with your brokers.

If the new regulations do not affect IDB, why do some say that it is a dying industry? Is the industry and it's profits getting getting smaller?

Thanks for the advice. If anyone is currently in IDB- how many people who start as analysts actually make it to a more senior level? And where do they go if they fail (I know drifter alluded to the second question but I was hoping for a more detailed answer)

q: how many people who start as analysts actually make it to a more senior level?

a: 1/2, the half that leave leave because they are looking for something for intellectually stimulating and "The bottom line is unless you are a FANTASTIC networker, know your markets, and not afraid to pick up the phone you are going to fail miserably"

Thank you sir

Hi guys,

I've just been recruited by a small Equity Derivatives Broker in Asia.

As I am still junior and don't know any traders, I will work in middle office. Then, after I proved myself, I may come closer to front office guys.

I want to do my best and be proactive about my job. I am looking to receive any advices from you guys, and especially those related to how to make connections with traders ? Actually, I have already been to the bars where they sometime hang out, but sor far it's been difficult to talk to them (they wonder who is this young broker who wants to befriend them, especially when they get to know I work at a brokerage company). What is the process to know this guy for someone who has very few connections at the beginning ?

Thank in advance for your advices,

Golden Boy

Go out with the senior guys as often as possible and ask them to introduce you. Don't expect to find new clients as a junior, every trader is being covered by someone somewhere. In the end it is a numbers game, the more you meet the higher the chance you will have someone to cover eventually. When going out with French people, they will speak French regardless if you comprehend, just a heads up.

Drifter - You mentioned that if you are new to idb, then it is easiest to start out with a liquid product. Does that affect compensation as well. For example, would the average fx options broker make less than the exotics broker? I only ask because clearly the fx guy would have more trades coming his way due to the liquid product. Yet, you said that the exotics broker would be better for someone more experienced.

I also understand that it depends on your traders, but does a younger broker on the fx desk make more than an experienced exotics broker simply because of the trade volume? Thanks

Very common path. Assistant and MO are virtually the same but responsibilities will vary house to house.