Prop Trading future
Hey guys,
Curious about you view on the future of PT and market maker? Is the proprietary trading industry dying? If so, why? What do you think about PT vs. S&T? Any thoughts on both of those as career options? What do you think will be the future of trading?
I interned at both types of firms and have friends at both working full time. I wouldn't say PTs and HFTs are dying, but those at the top are definitely flourishing. However, on the flip side, small prop shops often come and go, and you have to be good to stay at the top firms. Assuming you are considering prop shops that are top to mid tier (you can easily find this info), you will be paid significantly more in the beginning. Some total first year comp numbers range from 150-300k with some outliers above 300k (again depends on firm and overall firm success).
Most successful prop shops recruit people who are pretty good at math, quick at mental math, and can code (or be willing to learn). S&T is a more generalist role with growing push towards quantitative disciplines. There's greater risk at a prop shop, but it's an industry that's more in line with tech companies than banks (which probably gives them more stability than you think). If you are confident in your quantitative abilities, I would shoot for propshops. There's definitely less politics (to a certain extent), and it's definitely the faster way to make money if that's what you want.
As long as there is volatility in a given market, there will be PT and market making. Prop Traders enjoy speculating on the future (just like gamblers) and I don't believe this will ever go away. I don't think PT is dying, I just think it's evolving. Over time, the two main factors that will change are: 1) technology, which has already taken hold with regards to HFT and automation. Systematic and algo driven strategies will become the majority in terms of strategy categories. There will be less and less discretionary strategies. 2) markets, the focus on which products are traded will change as well. Products that have lower volatility will have gradually less participants versus products with high volatility will attract more participants e.g. BTC.
As for PT vs S&T, you need to fundamentally understand the differences between these two to decide on which one suits you and what you will enjoy the most. Do you think generating ideas, building strategies and constantly banging your head against the wall trying to predict the direction of the market in PT is preferable to S&T where you are looking for the most effective and efficient way to hedge a position that you did not choose while inadvertently taking a directional view on the market? Obviously PT is higher risk (yet has a higher pay-off) and can be more challenging than S&T and these are personal choices you need to understand and make.
I think to make it in PT, you need to be very confident in your abilities and be able to think outside the box. You need the resilience to comfortably churn through hundreds of ideas and not be phased to move onto the next. As for S&T, I think this requires a vast knowledge of the products and markets you trade. You need to be constantly aware of the relationships between instruments and what the liquidity of these instruments is like (market colour).
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