How do you know you will not blow up?

I heard about someone who graduated from H/W/S with a near to perfect GPA and chose to work for GS/MS/JPM as a trading analyst. Clearly, this kid could get almost any job on Wall Street, so he chose trading.

I get it that traders make the most money even though they start not that well-paid. But I just don't get that how do these people know that they will do well in trading? How do they make their decisions? How do they know that they will not blow up?

(I am one of the few people with the career dilemma of: S&T or M&A)

Comments (20)

 
Jun 23, 2013 - 7:53pm

Ambani:

I heard about someone who graduated from H/W/S with a near to perfect GPA and chose to work for GS/MS/JPM as a trading analyst. Clearly, this kid could get almost any job on Wall Street, so he chose trading.

I get it that traders make the most money even though they start not that well-paid. But I just don't get that how do these people know that they will do well in trading? How do they make their decisions? How do they know that they will not blow up?

(I am one of the few people with the career dilemma of: S&T or M&A)


They don't... Many do blow up, although it's harder to do that now.

But, really, there are many professions where you don't know at the outset whether you will do well or not.

 
Jun 23, 2013 - 8:54pm

Ramblin_Rebel13:

I don't think you understand the difference b/w a BB trader and a prop trader

If you're implying all market makers do well and don't blow up then you're quite mistaken.

There's one way to guarantee you never get blown up... never have a position. Then again, if your position is always no position, you'll likely get fired too.

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 
Jun 23, 2013 - 10:20pm

Now that I have posted this, I see a bunch of threads below that lead to similar posts, but thanks for all your responses.

And to respond to what you said Ramblin_Rebel13, all I know is that the base salary for prop traders isn't much but their bonuses depend on their performances (which has no limit), while BB traders don't get bonuses in the beginning. Actually, I don't know much about how BB trading analysts start. I think they don't trade at all in the beginning. Do they?

"I do not think that there is any other quality so essential to success of any kind as the quality of perseverance. It overcomes almost everything, even nature."
 
Jun 23, 2013 - 10:24pm

Ambani:

I heard about someone who graduated from H/W/S with a near to perfect GPA and chose to work for GS/MS/JPM as a trading analyst. Clearly, this kid could get almost any job on Wall Street, so he chose trading.

I get it that traders make the most money even though they start not that well-paid. But I just don't get that how do these people know that they will do well in trading? How do they make their decisions? How do they know that they will not blow up?

(I am one of the few people with the career dilemma of: S&T or M&A)

This brings nassim talebs stuff on black swans to mind. Technically they couldnt blow up in the traditional meaning of blowing up. But they could slowly continue losing, systematically, if no black swan occurs.

 
Jun 23, 2013 - 11:28pm

jackbnimble:

Ambani:

I heard about someone who graduated from H/W/S with a near to perfect GPA and chose to work for GS/MS/JPM as a trading analyst. Clearly, this kid could get almost any job on Wall Street, so he chose trading.

I get it that traders make the most money even though they start not that well-paid. But I just don't get that how do these people know that they will do well in trading? How do they make their decisions? How do they know that they will not blow up?

(I am one of the few people with the career dilemma of: S&T or M&A)

This brings nassim talebs stuff on black swans to mind. Technically they couldnt blow up in the traditional meaning of blowing up. But they could slowly continue losing, systematically, if no black swan occurs.

Why can't they blow up in the traditional sense?

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 
Jun 24, 2013 - 12:22am

Revsly:

jackbnimble:
Ambani:

I heard about someone who graduated from H/W/S with a near to perfect GPA and chose to work for GS/MS/JPM as a trading analyst. Clearly, this kid could get almost any job on Wall Street, so he chose trading.

I get it that traders make the most money even though they start not that well-paid. But I just don't get that how do these people know that they will do well in trading? How do they make their decisions? How do they know that they will not blow up?

(I am one of the few people with the career dilemma of: S&T or M&A)

This brings nassim talebs stuff on black swans to mind. Technically they couldnt blow up in the traditional meaning of blowing up. But they could slowly continue losing, systematically, if no black swan occurs.

Why can't they blow up in the traditional sense?

so to my knowledge what empirica was doing, was buying far OTM puts and calls on various securities, in order to catch a black swan event. the majority of the time these would obviously expire worthless. so im guessing they are usually expecting slow losses, most of the time. In other words, there is no way they can lose everything in one day, bu they can lose everything slowly over year or two little by little, if nothing super bad or good ever happens.

I mean sure that is technically blowing up, but when most people say blowing up they mean losing everything in a few days or weeks.

 
Jun 24, 2013 - 12:51am

if you graduate at the top of an ivy league school you are pretty alpha and will probably be successful with whatever you do

alpha currency trader wanna-be
 
Jun 25, 2013 - 1:56pm

The answer is that you don't know.

But look at it the other way. Let's say you join M&A at Goldman Stanley and work your ass off for 10 years and hit the VP level. At this point, you're expected to start being able to develop the relationships and trust with clients which will ultimately bring in money to the firm. When you're at the MD level, that will be your ONLY job. What if you can't produce fees for your BB then? Goldman Stanley will waste no time in kicking you to the curb. Same goes if you end up at a HF or PE fund after an M&A analyst stint. Granted, it's much harder to "blow up" at a PE fund but my point is that it is impossible to know whether or not you will succeed in any given endeavor in life. And finance is not the industry you want to enter if you prize career stability. If you look at any successful "BSD" now, they all failed at some point in their careers. Even Larry Fink blew up back in the day. You can't predict how your life will turn out so just choose the path you are most passionate about and pursue it. If you're smart and tough, you'll be fine in the long run.

 
Jun 25, 2013 - 5:41pm

You don't know. But if you're not willing to take that risk you probably have a personality that wouldn't do well in trading anyway. That's not better or worse, some jobs fit better with certain personalities and each person needs to find his place. Some people are comfortable taking risks and some aren't, that's all.

 
Jun 26, 2013 - 2:11am

Ramblin_Rebel13:

I don't think you understand the difference b/w a BB trader and a prop trader

a BB trader is just as likely to blow up, if not more so. This is because a market maker will oftne have thousands of positions, and some large nasty ones that were taken "to service the client" etc. As a BB trader a lot of the time you dont choose your positions, and sometimes cant hedge them unless for quite a big upfront loss, which results in some sleepless nights :). But it depends on the person. For example a client bought a whole load of ATM straddles on a very illiquid name. You are short a boatload of gamma on a name that you dont know much about and can go absolutely bonkers. You just have to bite the bullet and spend some money covering that short gamma. Some guys dont, but its where you open yourself up to that nightmare scenario of coming in the next day.

 
Jun 27, 2013 - 7:31pm

I recommend setting a specific percentage of your bankroll you're allowed to lose in one trade and one day. The guys at LTCM didn't account for extreme events and kept trading through them. Good traders know to walk away when something isn't right and come back when things have settled down again.

 
Jun 28, 2013 - 9:37am

In the last few years, BB trading has turned more and more to agency trading -- facilitating trades for clients -- and away from the traditional market making -- taking on positions from clients and your own views -- mainly because of recent capital regulations since the crisis. Stuff like the "London Whale" shenanigans still happen, but those are very rare and banks are moving away from that model and derive more PnL from commissions from trading volume instead of from alpha. In other words, college grads who go into S&T now at BBs are in very different roles compared to those who entered the industry 5-10 years ago.

That said, a lot of bright kids from these top schools are considering prop trading firms, and depending on the firm, you certainly have the potential to blow up. Like the other people above said, you often don't know how good you'll be at trading unless you're there, so that's the inherent risk in going down such a career path. The exception is if you're quantitative/technical and go to a firm that specializes in high frequency trading, statistical arbitrage, or other relatively low-risk strategies. If the firm has a good track record/reputation and is fairly competent, you can be more certain about your abilities (these places have highly selective and effective recruiting processes and if you made it, you'll probably do just fine).

 
Jun 30, 2013 - 5:05am

Seems like very few people know what they're talking about here.

I've been a trader a GS/JPM/MS for a few years now so let me clear this up. Your base salary is THE SAME as all the other analysts in M&A or ECM/DCM. Also I have received higher bonuses on average than my peers in banking have.

In addition, there is no concept of "bankroll" at a BB. You don't have a specific amount of cash that you can use. Rather, you have balance sheet and risk limits.

It's also difficult to blow up because for the first few months/years depending on the product, you will not have your own book, but will be working for a more senior trader (he, on the other hand, can blow up). Even when you trade independently, you don't always have a book to your name per se.

 
Jun 30, 2013 - 5:41am

mxc:

Seems like very few people know what they're talking about here.

I've been a trader a GS/JPM/MS for a few years now so let me clear this up. Your base salary is THE SAME as all the other analysts in M&A or ECM/DCM. Also I have received higher bonuses on average than my peers in banking have.

In addition, there is no concept of "bankroll" at a BB. You don't have a specific amount of cash that you can use. Rather, you have balance sheet and risk limits.

It's also difficult to blow up because for the first few months/years depending on the product, you will not have your own book, but will be working for a more senior trader (he, on the other hand, can blow up). Even when you trade independently, you don't always have a book to your name per se.

This.

 
Jul 2, 2013 - 3:47pm

no trader ever knows...but if you spend as much time studying the markets and trading as you do on your collage education...you can skew the odds in your favor.

Note - "studying the markets" = staring at the markets and paper trading 1-lots of futures 8 hrs a day from 8am-->4pm...5 days a week for 52 weeks

I am a proprietary Govt Bond Trader...i post my comments on the mkt intraday at twitter...and longer articles on my blog. I've accumulated a lot of educational info in these blogs..so i highly recommend checking them out http://govttrader.blogspot.com
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