How to Explain Large Trading Loss in Interview

volarb098's picture
Rank: Chimp | 11

Hey guys, looking for some advice. I'm a junior PM at a fund in New York. I'm currently interviewing for firms like Millennium, Bluecrest etc which tend to be quite conservative on risk, because I think it's time for a job change. Up to now, my profile was looking quite good but this week I made a large loss that basically wiped out 1.5 years of accumulated P&L. The loss was related to an illiquid product that I was forced by management to size up on. When markets turned crazy, I couldn't get out so I hedged the best that I could. Nevertheless it cost me a lot.

I am wondering how these firms would take this kind of one-off loss. Also, is there any "excuse" I can give to account for it that recruiters would be likely to accept. This is the largest loss of my career and my P&L has otherwise been quite stable with minimal drawdowns. I am a conservative trader and I really learned my lesson on this.

Thank you for your advice. Good luck out there

United States - Northeast

Comments (19)

Most Helpful
Mar 1, 2020

There may be no lesson to learn, frankly. When bosses make you size up, or do things you don't want to, you are massively short a put. Thing does well, they won't pay you because it was their idea. Thing does badly? Well, it's your book, right... Boss walks away and you don't get paid (or worse) get canned.

Is your track record verifiable or does the Firm keep it? If the latter, I wouldn't mention it. If the former, hmm... Hopefully someone else on this board can help there (I can't sadly). I would certainly have colleagues, whether they are fellow PMs, traders, back office as well as brokers who can vouch for the story, ready on your behalf if/when you need it.

Recruiters, headhunters etc, all of whom have never run a dime of risk in their life literally know nothing and have no clue what it's like. In other words, they are only looking to ding you. Their knowledge of products, the situation, etc will be minimal. You can say all kinds of things and they won't be able to test or verify it. Being brutally honest/open etc will only get you dinged.

What I am saying is, if you can, don't highlight it, or bring it up. You can consider doing so with markets people, ie. Senior PMs, traders etc. No matter the firm they will uniformly be more understanding because they have sat in that seat and seen a lot of things.

You need to get in the door first.

I wish I could give better thoughts, but this is the nature of the beast. How do you think so many blowup artists and dudes who have barely made P&L keep getting into different hedge funds? Why is turnover so high at MMs? For all of their interviewing, diligence etc, turnover annually is well north of 30% from what I have been told by people at said MMs.

Good Luck

    • 8
Mar 1, 2020

I feel bad for you, because there is not an easy way out of this one. As a PM, your track record is everything, so the moment management tried to forced positions into your book, you should have resigned. Now it's too late for that obviously.

A huge loss like that, particularly when perfectly correlated with a big market sell off, is a big turn-off for the multi-manager funds. You should try to lay the blame on management, thogh the obvious follow-up question is whether you really owned your prior, "good" track record or whether some of the positions where also not yours. Unfortunately, most answers you give are going to sound like "my dog ate my homework".

    • 1
Mar 1, 2020

Curious to know what you were trading and what kind of hedge you implemented? When I'm making market out of the curve, I had use the front to hedge and find the minimum variance hedge and slowly roll it and keep re-hedging. Obviously this isn't ideal so I'm curious to know. Whenever I prop trade, I always stick to liquid points. I assume you were prop trading so why did you go so far out?

Mar 1, 2020

assuming you are a market maker at a bank....which means the only way they can verify your pnl is to ask your boss (and theoretically, your boss shouldn't disclose that). they might do that anyway, but in your interview, you can just separate your prop trading pnl from your market making pnl, by saying "my prop trading strategy performs as xyz" (and just never mention your market making have separate books, right?), because you won't be a market maker at'll just be trading prop.

the platforms like millennium are looking for the following
1) good risk vs reward strategy with 3:1 or better metrics (risk 10mm to make 20mm, ect..)
2) track record of actually executing that strategy
3) ability of the PM to describe the strategy in high level terms they can understand, with enough detai that they don't think you are blowinf smoke, but not so much detail as you give away your strategy or get too deep into the weeds....this is a fine line.
4) back test thru 2008 to see how your strategy will perform thru the next crash/moment of illiquidity. you don' need to show them your backtest, you just need to talk about the results, in such a way that even during crisis, your strategy does not hit the drawdown limits (because that would be an automatic ding). You answer should not be "my stop limits losses during a crisis", because as you've seen, during a crisis there is no liquidity. Your answer should be, that during a crisis, your strategy is not really affected (and you've seen this in your backtest), because you are flat to the major factors, such as absolute market moves in the stock market, or level of interest rates. The platforms are mostly looking for types of relative value PMs.
5) ability of strategy to scale to large size. (if scalping is any part of your strategy, you should not mention that, because its an almost automatic ding...happens a lot during the be aware, they will try to trick you into disqualifying yourself...the platforms don't like scalpers, because there is a limit to how large they can scale if they perform well)

Ideally, you have a 2-3 sharpe, and risk 1 to make 3-4.
sharp higher than 3-4 is hard to believe and looks suspicious

    • 2
  • Quant in HF - Other
Mar 1, 2020

Could you please elaborate more on "3-4 is hard to believe"? Basically you mean that it is highly unlikely to find "such a strong" signal (your r2 or rmse could not be that high) or have enough turnover on that size (TC will be too high)?

Mar 1, 2020

high sharpe strategies (except for risk free like HFT front running) historically don't last..the more people become aware of a strategy, the more crowded it gets, until the signal loses most of its value. while this is not a "guaranteed fact" its just what most people believe, and you will find it hard to convince people otherwise. getting hired at a platform is all about not looking suspicious. the hiring team have a vested interest in you not losing money...because if you do, then THEY lose money. The biz dev people get a bonus toes to the performance of the PM's they they are loooking to hire PMs that they think will both make money, and not lose. If you lose money then the biz dev peson who hired you loses $$ from their paycheck. This is smart for the fund to aligns incentives

Mar 1, 2020

regarding that particular really should not consider it to be yours....that was a position owned by mgmt. they might not pay you because another trading on the desk lost money, but it was not your trade. this is also a good reason to interview for the platforms in general...its a good reason to leave a bank

Mar 10, 2020

The key to staging a comeback in the MM industry is to always have your excuses ready in your back pocket. Try the following

  1. If there's no verifiable track record, just lie or obfuscate. I've seen the hiring process at these MMs and it's a surprisingly simple process (simple does not mean easy, just robust). All you need is a semi-verifiable PnL or employment record, no negative compliance reputation, and a story for why you make money at your last job. They will let you run a book for 1-2 years and if you don't make money, they'll fire you and replace you with the next hotshot.
  2. If there is an auditable track record, blame senior management. If you work at a firm where the senior management has a rep for pushing its PMs to be bigger than they are comfortable (cough cough citadel), then so much the better they might buy the excuse.
  3. Last step is you declare "it was loss triggered by totally unprecedented market conditions," give your illiquidity explanation, and you claim you learned your lesson. These MM are actually happier hiring a guy who lost a bunch of money once in a freak event compared to someone who just chops around for a few years without making anything. I think their logic is that freak accidents won't necessarily repeat, whereas a consistent loser will remain a consistent loser. In my estimation, blowup artists tend to blow up consistently too, but for finding new jobs in MM, you're generally better off with a single large loss than a consistent series of small losses all else equal.
    • 2
  • Quant in HF - Other
Mar 10, 2020

What do you mean by negative compliance rep?

Mar 10, 2020