FI Traders > Equity Traders?
The Big Short, what an awesome book that was! It gave insights into the crash that I have never realized before, and would have never came to learn in school either. The book informed me that equity traders are looked down upon compared to fixed income traders, according to the author. The author explained of the massive size and volume of fixed income markets compared to equity markets. He also explained of the larger spreads and ability for fixed income to be bundled into the new (and largely misunderstood) pools of debt obligations.
So where does the belief that equity traders are less than fixed income traders stem from? Are fixed income traders truly greater than equity traders? Do they have higher incomes perhaps?
I have no experience or opinion on the topic, just curiousity.
Didn't you just answer your own question?
I have no experience in trading. Was trying to get insight from experienced people to see where this belief comes from and the reasoning behind it.
Do fixed income traders feel as if they are superior to equity traders?
Answer: No. But i do wonder how does equity market markers make money given there is very little room to make bid/offer... I am sure they do I just don't know how.
What do you mean by "truly greater"?
there's a lot more moving wheels in the fixed income world then equity world....fx/swaps/rates...they all go into a given trade
That makes sense. How about the compensation side? Are fixed income trading positions more difficult to obtain?
I'd say there are more opportunities in FI compared to EQ. It is a bigger market and a lot of equities are being automated by computers
Fixed income is also going the way of computers....
Yes and no. There are some products that are more automated as said above. The corp bond market is becoming more electronic as well other prouducts are just to complex at the moment
Will be significantly harder to stick FI product through automated system due to maturity/fungibility issues though people certainly ARE trying.
Also in options trading it doesn't quite matter. Equity index options is just as highly paid as FI counterparts.
fixed income trading higher paid, for most part...and bond market much larger than equities markets
I'm a fixed income trader and yeah I feel superior to equity traders.
I think FI is just more interesting. More moving parts, everything is less clear, lots of room for analysis, you can try to develop an edge. Also can be more structured/leveraged.
Haha thanks
FI too, but dude, you realize there is more to equity than cash right? I just don't understand where the feeling of superiority is coming from.
I was actually worried that the thread referred to someone trying to transition from FI to equities.
I also don't believe FI is going the way of the computers. Sure, spot FX, govies, vanilla swaps, we have automated market makers. But the rest is just too bespoke
Let me add to what I said
The only link between stock A and stock B will be a form of correlation, whereas in fixed income you typically have a relationship like product A = product B + basis. E.g: German 10y = rates + asset swap spread Spain 10y = German 10y + spread Bund repo = Eonia + GC spread Cross-currency swap = FX forward + 2x vanilla IRS Corporate bond = CDS + CDS basis => bond - CDS = basis package = funding
etc.
One thing I can think of in equity that is fixed income-sy is index arb, where you trade the future vs. underlyers and get long/short the funding...
I guess equity vol is more interesting though
Yes, i.e. delta-one desks and all the equity finance and index arb in between. While equity derv's are interesting, i still wouldnt classify them as being anywhere near FI.
A lot of the posts in this thread are completely disregarding the entire derivatives side of equities, which gets just as complicated as fixed income products, if not more so. Fixed income products are complicated, but the underlyings are things with defined characteristics, whereas equity derivs are based on an underlying that can go bankrupt tomorrow, or get taken over for twice the price.
You have binary payoffs in FICC too... Actually you have that every month after central bank meetings. Also, it doesn't matter much when the underlyer is super liquid. In that respect vanilla FX options are a bit like vanilla equity options. Except that FX options can be quanto! There you go, another reason why FICC is more interesting. Those derivs also strongly depend on CSAs, which are a FICC field of knowledge.
Couple of things:
1) you do realize there are quanto's on equities right? Equity derivs isnt just options, that is the simplest non linear derivative and makes up a tiny portion of an equity derivs department. 2) liquidity of the underlying doesnt help you in a binary risk. You think if there is announcement that a stock is being taken over at twice its current price there will be any liqudity in between 100 and 200? 3) if you think stocks are liquid then you clearly have not run an options book. Yes the big names are fairly liquid, but if you have any sort of large options position on a second tier name have fun hedging. It is fairly common to have a position of 20mil eur notional and your end of day hedge will be 200% of daily volume. Derivatives desks deal with second/third/fourth order risks by hedging out the first/second/third order risks. So if you are trading volatility, you do that by hedging out the delta risk on options. However, the first order risk is greater than the second order risk, which is why if you trade options unhedged your P&L is most explained by delta, and that is why you hedge it. So therefore when you trade the second order risk, your first order risk is much bigger the majority of the time, which is why you run into such liqudity options on derivatives.
thanks for jumping in derivs...i was getting worried i was going to have to but really didn't feel the motivation to respond to this post for the 900th time.
+1 to this even though I am in FI. Trading in options taught us how to spell humble.
+1 to this even though I am in FI. Trading in options taught us how to spell humble.
Very true. Thanks for your input.
and generally these more liquid markets have more size. fx desks have even thinner margins
derivstrading hit the nail on the head.
No, I've never run a vol book but I do run large cross-gamma positions, some very difficult to hedge, so I wasn't born yesterday and I understand what you say. I still find fixed income more interesting and explained my thought process to the OP.
Im not implying you dont know what you are talking about, you might be very experienced in fixed income, but you clearly do nto know what the equities world is like. You say you are more interested in FI than equities and thats fair enough, the more macro prodcuts might draw your interest more, but the assumption that fixed income is more complex isnt really true. Yes if you compare FI to cash equities, then ofc thats the conclusion, but its the wrong comparison.
Its just like everyone who talks about equities on this board always brings up how equities are getting more automated. Yes that is true, simpler products are and will be automated, but just like in fixed income there are a lot of products that cant be automated. Equities isnt just some frat boys trading shares.
Keep in mind who the author of that book was. He worked in S&T at Solomon Brothers when FI was gaining steam. He even coined the phrase, "Equities in Dallas" to show the mediocrity in EQ trading.
That is true. The book probably is FI biased.
Dp
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