Q&A: Former BB Rates Trader - Now a prop trader

ironnchef's picture
Rank: Neanderthal | 2,692

I've enjoyed this forum, and i see lots of people without a clue asking questions about trading, so i thought i'd do a Q&A..

My path was non-standard, but i've seen others with a similar path to my own.

My Path --> Non-Target state school --> Job in BB IT (programming) --> BB Rates Trading Desk Quant --> BB Rates Trader (market maker) --> prop trader

I have also watched many of my former colleagues (both quant and non-quant traders) over the years move to hedge funds and asset management firms as traders and PMs (PM = portfolio managers).

For people new to trading, this video series is pretty good. There is a lot of macro fluff...but there is also some good technical trading info with charts (starting 8-10 videos in)...you just need to have the patience to get thru the fluff.

Comments (95)

Feb 9, 2017

What kind of strategies do you trade now? Is it the same or different than when you were at a bank? Mostly systematic or discretionary?

How many years did you spend at each of those roles?

Feb 9, 2017

at the banks, i was a market maker (so, most positions are those customers force you into)...so i focused on RV...trying to prepare for flows that i didn't want (so, sell things that are rich...buy things that are cheap...in anticipation of customers doing the exact same thing.

Over time at the dealers, i learned how to prop trade on a larger macro scale (curve, butterflies) but still in the Rates space.

Then eventually, i learned how to trade outright direction.

Each level from micro-->macro required a slightly different skillset. I spent about 3 years at each...

    • 2
Feb 9, 2017

Thanks for your reply.

Did you find it difficult to transition to a prop role without the customer flow information or internal research that came with the bank? Were you able to maintain your edge since leaving the bank?

    • 1
Feb 9, 2017

Could you talk a bit more about what your day to day was like as a desk quant as well as how you made the transition from desk quant to trader?

    • 1
Feb 9, 2017

desk quant day - usually there were multiple projects from traders to work on...some required liasing with different IT groups...some were completely my own to work on (usually in excel)

some traders had very specific ideas of what they wanted built to help them trade (market monitors, RV monitors, specific analysis tools, generic analysis tools)...so lots of conversations were involved...i had to understand what the trader wanted to do, before i was able to implement it...this was a great learning experience

    • 1
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Feb 9, 2017

a trader i worded with asked me to trade a book with him...it was a no brainer decision for me

Feb 9, 2017

How did you make the transition from BB IT to Desk Quant?

How common is it to transition out of Technology / IT to a Trading Desk or something more Front-Office?

Feb 9, 2017

The desk i was doing IT work for asked me to sit on their desk (the traders were often walking over to my desk off the floor to ask questions and make changes)...the transition was gradual...but eventually became cemented.

Its not super common, but it happens periodically...i've seen 3-4 others make the same transition

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Feb 9, 2017

In terms of profitability, which strategies would you say is better RV (Depends on Market evniroment but regardless) or outright and which is more complicated?

Do you think it takes more skill as a prop or sell-side trader?

Feb 9, 2017

these all depend on the individual, and your setup.

RV usually requires more capital (balance sheet) for the same PnL risk, and so the % return on capital has a lower ceiling than outright if you don't get some margin reduction (like in the ZN/ZB spread).

So, its a case by case basis...hard to make a generalization.
RV requires more liquidity to execute trades...which makes it harder than outright (sometimes impossible).

Both are extremely complicated...so it depends on where your strength lies. Outright requires more "reading the emotion of the market" where RV (from curve spreads to flies) has more of a mathematical component, and often moves a little slower that the outright market.

both prop and sell-side market making require intense skill (to be good)....i'd say sell-side requires slightly less skill, just because you have more capital to push the market around...where most prop traders are not big enough to have an impact...but sell side requires the trader to make much more $$ to get paid the same as a prop trading making much less.

If a prop trader makes 10mm trading, he'll keep 5-7mm of that (depending on the firm). If the sell side trader makes 10mm, he'll get paid 500k-1mm (around 5-10%). However, the sell side trader will be trading much larger size...banks expect you to make 20-40mm in an avg seat with a 5-15mm stop loss (from what i've seen)...which = a 1mm-4mm bonus.

These are not apples to apples tho, because the prop trader has all their personal money in the trading account...the sell side trader has zero personally invested (except the job...biggest risk is getting fired)...so trade risk mgmt is different.

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Sep 28, 2018

These numbers seem very off. If a trader makes 5-10% of its turnover and an average seat is expected to make 20-40 than it means that the average trader makes from 1 to 4 millions in bonus every year. These are numbers that probably were appropriate in the 80s.... now an average bonus of 1-4 millions for sellside traders is a bit of a dream I think

Feb 9, 2017

For RV, I know you mentioned it requires more math and I going to assume you're referring to regression models? To more specific, using PCA to get an idea whether or not prices are relatively cheap or rich to one another. But what factors do you look at? Honestly, I've never used PCA and I'm starting to get a understanding for it, but in terms of fixed income RV trading, how would you use it?

    • 1
Feb 9, 2017

depends on how micro you are getting...5-10-30 fly is a different beast from 7-8-9 off-the-run fly...which also requires knowledge about the specific issues and who owns them. I would only engage in micro RV in a sell side dealer seat where you see good flow. 5-10-30 is a macro trade less affected by just a few accounts.

    • 1
Feb 9, 2017

Could you elaborate? You lost me on the second sentence haha. You wrote this on a different post, asking martinghoul and trust me... I've tried re-reading but I have no idea what the hell this means.

"Since you've mentioned that you trade rates RV....what are your thoughts on the US Treasury 10yr-US (20yr)-30yr fly
(PCA DV01 weighted: 30k-90k-70k) ?

US (20yr bond future...essentially the Feb2036 bond) has been cheapening the last month in the 30yr bond selloff (market assumption is that speculation of BOJ curve steepening will flow to foreign markets, so that drove large long end selling flows...and the preferred hedge to these flows is the classic bond future...which has caused this cheapening).

I'm personally waiting for the BOJ to pass and see what they actually say/do before i touch this thing for anything more than an intraday scalp. Thoughts? Do you intra-day-trade these types of structures?"

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Best Response
Feb 9, 2017

first look at things in yield to determine your baseline view of RV.
10yr - known
20yr - ZB CTD...assumed Feb2036 bond for convenience...although now its the May 2037 bond (May37)
30yr - known

So, May37 (20yr) yield - (0.5 x 10yr yield + 0.5 x 30yr yield) = level of 50/50 DV01 neutral fly
You can plot this using 3pm daily closing yields from any ibank.

This assumes a 50/50 weighted DV01 neutral fly.

50/50 = the wings have equal weight (each wing DV01 will be 50% of belly DV01).
DV01 neutral = the sum of the wings DV01 are equal to to the belly DV01.

So, lets say you want to put on 100k the belly for this 50/50 fly. You would need to calculate "how many May2037 bonds gives me 100k of DV01?" Then you would say, ok, now how many 10yr notes gives me 50k DV01 (50% of 100k), and also 50k of 30yr bonds. This tells you how many bonds you actually need to trade to put on your position.

Lets go back to the 50/50 yield chart from up top...and plot it with the 10yr yield. Do you notice any correlation? aka...do they trend together? If so, how much? Here you would use PCA to find the correlation coefficients..to tell you "how correlated is this fly to the level of 10yr rates?"

the answer in this case is about 10% over the medium term. Depending on what timeframe you look at might change these correlation % numbers,

PCA doesn't tell you what will happen next...it just tells you, for the period you are looking at, what happened?
Its up to you as a trader to decide what you think will happen next, based on all the available information.

In the case of this fly, after the trump election win, ZB richened a lot (the curve flattened at the 7-15yr point)...the market was betting on instability, and a new level of stability for this fly was found (about 60 ticks richer = 8 basis points)

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Feb 9, 2017

Got it, so really you're looking to see if there is dislocation of the 20yr CTD to the 10yr and 30yr. So you DV01 neutral both 10yr and 30yr to trade the belly? I understand trading butterfly is a bit more complex, but how is this any different from curve trading only the 10 yr and 30 yr?

Feb 9, 2017

Sorry I'm not making this "AMA" enjoyable for you haha.

Feb 11, 2017

Having come from a quant background, did you feel that your quantitative abilities were underutilized trading a cash product? Why not trade the rates vol space?

Feb 11, 2017

Currently a senior trader at a reputable prop firm's rates option MM desk. I am wondering whether AMs, HFs, or BBs woul d be interested at me (and which type of firms I should look at ifI decide to move. Should I target a PM at a small vol fund vs Analyst at PIMCO). Also what skill set would you recommend to make myself more valuable? Thanks.

Feb 13, 2017
QWEigniteR:

Currently a senior trader at a reputable prop firm's rates option MM desk. I am wondering whether AMs, HFs, or BBs woul d be interested at me (and which type of firms I should look at ifI decide to move. Should I target a PM at a small vol fund vs Analyst at PIMCO). Also what skill set would you recommend to make myself more valuable? Thanks.

The large AM firms tend to hire PM's that are a known asset (desk heads & high performers from BB trading desks...other funds, etc..)...OR...thru networking and internal development. If you are making 1mm+ an an options trader MM at a prop firm...then you should be able to make the transition (tho if you are, then why would you want to leave..and if not, then why would they want to hire you?).

If you are NOT making big $$ right now, then you'll need to go in via the side door...market yourself as a desk quant / strategist (learn whatever skills you need to make that true)...and then get a job doing that. The quant / strategist role will put you in a position to sell yourself as a trader/PM down the line.

Prop firms don't have natural exits. If you do well, you make bags of money and won't want to leave. If you don't do well, then you need to change career paths. Neither of these are "natural exits".

Feb 13, 2017

Thanks for the info.

My desk is making low~mid 8 digits consistently and I am the second most senior guy here. Some of the PNL is MMing and some is prop trading vol. I am super confident that myself could make few mil by purely prop trading vol at my product.

The reason I 'might' want to leave is my focus is mostly on the HFT side here. I want to know more about the fundamentals and the bigger picture of the market. I got few offers from well named quant funds (Cit/Shaw) so I think I have edge on that part but not sure my skill set is marketable on the fundamental side. My works is fun and I am making good cash here but seems like the learning curve decreases a bit.

So lets say if I make a desk head at my firm, do you think I could switch to a large AM firm? If then, what would be my responsibility over there? Still punting vol?

Feb 13, 2017

Many thanks for AMA. I'm going to be an intern at a BB trading desk this year, and have been learning a lot about rates trading. Any advice on small projects/things I can do during the internship that'll make me stand out?

Feb 13, 2017
delta1bro:

Many thanks for AMA. I'm going to be an intern at a BB trading desk this year, and have been learning a lot about rates trading. Any advice on small projects/things I can do during the internship that'll make me stand out?

1) become an excel and VBA master. start doing excel projects now. regressions, organizing data, build a "whats priced in to FOMC expectations" spreadsheet. Learn how to program in VBA (not recording VBA macros..but actual programming). Learn how to do PCA analysis in excel of something vs something else (like the 5-10-30 fly vs 5/30 curve and level of rates...just as a starting point)

2) statisiscs and math. the more the better..learn how to apply advanced concepts, and actually do it...analyze the current market...that's the job of a trader. Look at technical studies like bollinger bands, and ask yourself...what could be done to imprive the study....how would you change it. what else can you add. Try to create a predictive study of your own...perhaps just with small modificatios to existing studies...perhaps something new. Learn everything about technical analysis. John Murphy's book is a good place to start.

i could go on...but this is more than enough to get you through the summer

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Feb 13, 2017

Much appreciated. WSO posts on trading, both from experienced guys and prospective monkeys is quite on the wane. Thanks for the quality content

Feb 13, 2017

sorry if i missed it, but can you tell us what sort of PnL you generated last 2 years and what your total comp was those years?

Feb 14, 2017
jasonastor1:

sorry if i missed it, but can you tell us what sort of PnL you generated last 2 years and what your total comp was those years?

asking a trader his PnL is like asking a girl how old she is, and how much does she weigh.

so i'll answer in s similar fashion...i've made "enough"...but i still enjoy the action of trading the markets...its almost like an addiction...the high of getting it right is like nothing else, and makes you feel like a god...and the low of getting it wrong is even worse.

my high water mark was +20mm on the year
my low water mark was down -2mm on the year

"i've seen things...you know"

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Feb 13, 2017

Yup... 7 years ago, this was just a hobby, trading penny stocks in my parents house... Addiction got me into the industry.

Feb 13, 2017

I am not in S&T but you have a hell of an interesting story, SB.

Feb 19, 2017

I might sound a little idiotic...But I am a highschool student pretty much convinced that I want to become a trader. Reading and learning about it is pretty much all I do when I'm not studying for my exams. I also trade a small account... AMAs like this one are very interesting to me...Many thanks for posting it. By the way, what programming languages should I master? I already know Python.

Feb 19, 2017
l0l:

I might sound a little idiotic...But I am a highschool student pretty much convinced that I want to become a trader. Reading and learning about it is pretty much all I do when I'm not studying for my exams. I also trade a small account... AMAs like this one are very interesting to me...Many thanks for posting it. By the way, what programming languages should I master? I already know Python.

i would suggest learning the math/stats packages...so Mathematica and Matlab (for doing stats analysis)
And then for more practical / visual....become an expert in Excel and VBA.

    • 1
Feb 19, 2017

Thanks for answering. Much appreciated.

Feb 19, 2017

ironnchef, thank you so much for the AMA.
I have learned a lot from your replies all along.

Feb 19, 2017

@Ironchef" how was doing quant work with only undergrad under your belt? What was your undergrad degree? Do you think that it depends on the product for the level of education required?

Feb 20, 2017
Close4Coffee:

@Ironchef how was doing quant work with only undergrad under your belt? What was your undergrad degree? Do you think that it depends on the product for the level of education required?

i don't have a STEM degree...just economics...but i learned a few things over the years while i was working in IT with a bunch of real quants (Phd types). most finance math doesn't take a PhD...it just takes patience and the will to work thru a problem until you understand all the necessary aspects. Sure, this might take me longer to work thru a problem and figure it out than someone with a degree in the relevant math...but that's usually all i need...time. I've found myself reading thru research papers and academic texts on more than one occasion trying to understand some new math (well, new to me). Often, the 1st time i look at an equation, i go blank and understand none of it....but then you break it down into smaller more easily digested chunks, and work my way up until i understand the whole thing. This process takes time, and can be very frustrating at times..but this is how my brain learns.

i'm generally more visual, so i prefer charts over numbers...but both are necessary. I'm sure that the more simple the product, the less intense the math...but even the more complicted stuff is mostly just the same math with more iterations. You probably can't get a job by saying "i don't understand this stuff, but given enough time i'll be able to learn it"...this was all stuff that i did on my own while having a "dumber job" (aka, programmer), which eventually led to a promotion after i learned what i needed to.

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Feb 20, 2017

When you went from a BB rates trader to a prop trader, was this an internal transfer to a specific group or did you interview at multiple prop firms? If you don't mind sharing, which prop firms did you interview at?

Feb 21, 2017

not internal...i spoke with less than a dozen prop firms. most are on lists on this site...a few i found thru my network

Feb 27, 2017

If you don't mind sharing, any of those prop firms have offices in NYC? Thanks for doing the AMA.

Feb 21, 2017

mind if i PM you?

alpha currency trader wanna-be

Feb 21, 2017

i'd prefer if you ask your question out in the open so everybody can partake...but sure, go ahead

Feb 21, 2017

fair enough- ill ask here

ive been toying around with some basic strategies (using some basic rules, not tech analysis other than moving averages) and have found some interesting backtests

ive also built some strategies using machine learning (just backtests) and found a profitable one. keep in mind this is us equities...

im using daily data from yahoo so its kind of not the best thing to do

how would you go about proving the results are 'significant' in the eyes of a trader/PM ? i feel like my backtesting program i created in excel/vba is good but would still get LOLs from any real professional trader

alpha currency trader wanna-be

Feb 22, 2017

Could you explain a bit about fundamental analysis and what to look for when reading articles and research etc, and how to interpret the information to create a trade plan/idea

Feb 22, 2017
joehilton1990:

Could you explain a bit about fundamental analysis and what to look for when reading articles and research etc, and how to interpret the information to create a trade plan/idea

you need to be more specific...are you referring to equities, interest rates, FX, crude oil, etc...?

Feb 22, 2017

Oh damn sorry! I mean for FX markets

Feb 22, 2017

Prospective Fixed Income trader...how much programming should I know? Currently learning data structures in C++. Any desks with less programming needed?

Feb 23, 2017
hockey34:

Prospective Fixed Income trader...how much programming should I know? Currently learning data structures in C++. Any desks with less programming needed?

Excel VBA will serve you well...C++ is always good to know....also Python.
Def learn SQL \ Databases
MatLab and Mathematica for stats testing work
"r" is also highly valued

Feb 23, 2017

Do you trade across the curve into commodities and equities actively ?

How many FX pairs do you screen/trade?

Feb 23, 2017
wallstreetballa:

Do you trade across the curve into commodities and equities actively ?

How many FX pairs do you screen/trade?

actively, i trade Treasuries across the curve (cash & futures...occasionally options)
i have on my screen, and trade less actively: ES, CL, GC, USD/JPY, USD/MXN

i'll look at EUR and GBP, but less often, as they do not have a strong correlation with US treasuries, which is my main focus. i also watch Bunds and Gilts, but don't trade them very often

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Feb 23, 2017

Definitely would of thought you had more FX pairs, surprised how tight your asset coverage is.

What advice would you give to someone with a Bloomberg looking to learn trading macro in a true/prop fashion?

I understand rates/fx on the surface but (not a trader on a desk) haven't spent a lot of time learning "Market Macro" other than natural resource coverage.

Feb 23, 2017

i'm not a classical macro guy...i'm more of a 2-5hr swing trader. Big macro guys would call me a scalper...HFT guys would call me a position trader. it all depends on your perspective. i try to capture the day's range, every day. Some days i'm very successful..other days, not so much.

There is no high, better than buying the low of the day, and selling the high print. I chase that high every day.

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Feb 23, 2017

Fair enough. Given that you're so short term and look at other asset classes would love to hear a little bit more about your process/analysis (without revealing any secret sauce) of factoring in a mix of assets into a trade. Obviously no two trades are the same but from a guy who takes medium term positions based on fundamentals in the commodity space, really interested in the type of analysis that goes into the shorter term in rates and fx.

Feb 23, 2017

1st, i don't trade during times of exceptional volatility (Trump election, FOMC, NFP)...i'll be flat during those events. I prefer to wait and see how the market reacts (both to the news itself, as well as the market reaction to the initial market reaction. (for example, ES sold off to limit down at 1am the night of the Trump election, but was then bought in size off the lows, and the market has rallied ever since....so the 2nd reaction has been the dominant theme...this is the case more often than not)

This gives me clarity as to the ensueing trend, and helps me shape my view. Then we ad technicals. I have my own secret sauce, but you will do a lot of good by finding a timeframe that tends to respect its bollinger band (you also need to find the correct parameters for whatever technical study you use...don't just accept the defaults...for example, defautl bollinger bands use a 20 bar avg anbd 2 st.deviations...but who said 20 bars is the correct number of bars...and who said 2 st.devs was the correct number of st.devs? If you play with the params, you can find something that makes sense to you.)

Then, you got to learn technical analysis...it will teach you to read how price develops....so you can see when large players are buying / selling. This (in my opinion) is the key to trading.

    • 1
Feb 23, 2017

Really insightful, thank you for this and this thread!

Mar 6, 2017

I'm currently an analyst at what you'd call "BB IT (programming)" in equities.
You mentioned that you became a desk quant after working closely with the traders on some IT projects.

When did you develop your finance/trading knowledge? Did you have to learn this for your usual projects or you had to learn it yourself off the job? If so, how did you get the traders to treat you seriously that you know something about trading?

Mar 6, 2017

i learned as much as i could on my own...i read every book on trading, technical analysis, options, futures, bonds, swaps, trading psychology, market profile, etc...every book that i could find...i probably read over 50 books over the span of 1-2 years...plus lots of videos

THEN, when i felt comfortable, i approached a trader that i was doing IT work for and started asking questions. At first my questions were all tangentially related to the IT projects that i was working on....but then as my relationship with the traders became more comfortable, then i started asking questions that were inspired by my own research and curiosity. It was a natural progression, because i was legit interested...not just in "trading" as a theoretical exercise, but i was paper trading, and i had questions about markets...such as "why did the market rally after this event?" "why didn't the market reverse after this other thing happened?" "why is this curve so flat?" etc...

Mar 9, 2017

Thanks for replying.

Would you recommend some of your favorite books?

Also, if the opportunity to become a BB quant isn't there, do you know how likely it is to move from dev in BB to dev in HFT, or quant funds?

Oct 18, 2017

Thanks for such an informative AMA. My aim is to build a profile for trading in 2 years. I have a CS background so I know C++ and VBA. Currently I'm in a master's degree specialising in Financial Markets.

Following your advice in another thread I opened a paper trading account with Interactive Brokers. But I don't know what to do from there.

So I decided to start reading books on trading such as Market Wizards to get a general idea about trading. Not only that but I also spend 3 hours every day reading the Financial Times.

Could you suggest me some trading books to read so that every time I open my paper trading account I'm not confused about what to do next? One of my main problem is I cannot decide which product to trade.

Also could you suggest some projects that I can undertake in VBA to strngthen my profile for an S&T internship?

"The markets are always changing , and they are always the same."

Oct 18, 2017

start with crude oil futures (ticker: CL)
start with an 8 hour chart and a bollinger band just to get an idea of the market theme...then go down to a 1minute chart for actual trading

Oct 18, 2017

@nofundforoldtraders"

Thanks a lot for answering all the questions that I had.

"The markets are always changing , and they are always the same."

Feb 7, 2018

What skills do you learn as a desk quant and what skills do you need for the job?

Aug 1, 2018

Hi, im working outside US as a trader at a firm, which doesnt have a branch overseas. Have you seen anyone making a transition from overseas to BB or prop trading firm in the states?

Aug 1, 2018

I am just about to start as a global market graduate analyst (applied for sales and trading graduate programme) at BB.

I do not know why but I did not have any choice in selecting my own team, and I am currently assigned to a prime brokerage HFT platform product management team (very system, IT driven role, with client interactions). I have always wanted to be involved in a "market-driven" role and I am afraid I would be pigeonholed in this field unless I move quickly.

My ultimate goal is to be trader like yourself or be a portfolio manager. Do you have any suggestions on what I should be doing? (like applying for other firms S&T roles etc)
It would be a great help if you have any advice on what is the best option given my situation. Thank you.

Aug 1, 2018

if you didn't get picked to go into sales & trading (don't feel bad...i didn't either) then you'll need to backdoor your way in. The most common backdoor is either research, or IT. Research should be a straight shot after 1-2 years (research is often called a breeding ground for growing traders). If you can't get into research, then i suggest IT. Learn how to code (its easy...its just logical thinking...anybody can do it if you are smart...you can learn Python and SQL and Excel VBA, for free from youtube videos, or take a udemy course for $12). Once you learn how to code, look for jobs for desk developers (a desk developer is a programmer who does small projects for traders). After 1-2 years as a desk developer, you usually get a shot as a trader if you want it (thats what i did)

just google it...you're welcome

Aug 1, 2018
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Aug 2, 2018
Aug 2, 2018