Q&A: Quantitative Derivatives Trader, 1 year in

Hey guys, Figured I'd do a Q&A because this site has helped me quite a bit in the past, and hopefully I have something to offer back. For a quick background, I graduated from a semi target as a math major, interned in IBD at a top bulge bracket, decided it wasn't for me, and now have been working as a derivatives trader at a top Chicago OMM firm for the past year or so. Feel free to ask anything, and I'll try to answer as best as I can. Apologies if it takes me a day or two to respond.

 
Tryna Trade:
I've traded options on equities (indexes, not individuals), energies, metals, and interest rates.
Wait, sh*t, we spoke! Now I feel like a demented old fart, but I am sure I'll forget about it soon enough :/
I have a friend who lives in the country, and it's supposed to be an hour from 42nd Street. A lie! The only thing that's an hour from 42nd Street is 43rd Street!
 

I would say above 70%, but it depends on your definition of "make it." Almost all new hires get to the point that they're able to actually trade, but very few get to the point where they're real ballers and make a ridiculous amount of money. 70% or so make it to the point that they are given what I consider actual responsibility, in that they have enough responsibility to potentially make or lose the firm a lot of money.

 
Most Helpful

Sure - I get in around 6:15, and start my day on the trading desk. I'm actually trading until about 3:30pm (this includes both manual trading and overseeing algorithmic systems, call it a 50/50 or so split). After that, most days I'm around until 5-5:30 or so, whether that means working with devs to improve our systems, actually running quantitative projects myself to try and find a better way to trade (mostly python, little R), or something else. Very rarely am I coding the actual algorithm myself, more often I'm analyzing data to find a potential opportunity. This may be more specific to my firm, I'm not sure.

 

Would you say you enjoy your job? How has working 11-12 hours a day (where I assume most of those hours are fairly intensive, correct me if I'm wrong) affected your life? Have you experienced burnout at all? I know some people who say the work makes them thrive because it's very exciting, but I know others who couldn't take it after a few years and left the industry.

 

I enjoy it for work, yes, but it's not like I'd wake up and go to work if I wasn't getting paid to do it. It's definitely a grind, but I would say I absolutely prefer it to banking. I rather the ~11 hours of intense work to the ~16 hours where you're just sitting around doing nothing for half of it. I'm fairly new so I wouldn't say I've experienced burnout yet, but I have fully realized that it's not the kind of thing I want to be doing forever.

 

Can I understand as your job: 1) Monitor market / algo performing; 2) Detect mkt pattern and generate trading idea; implemented by quant/it 3) Hedge delta exposure and making balance between carry gamma; Anything left or misunderstanding? Mind I ask the "quant" part you mentioned is mainly stats (time series / regression / mean reversion / data fitting ) or other technique (machine learnin / AI )

Question: as for vol, which greek has biggest concern and how you monitor that? I mean Vanna/Volta/skew;

Thanks in advance

 

1-3 cover a decent chunk of it. I also trade OTC so some time is spent talking to brokers, etc, and manually trade on the screens as well. An underrated part of it is position management, AKA making adjustments to parameters of our model throughout the trading day, and analyzing our position.

I wouldn't say there's one "most important" greek, as too much exposure to any can certainly be very dangerous. The one that can swing the fastest, though, is what we call weight-adjusted vega, or vega of an option divided by the vega of the ATM option in that month. So e.g. an ATM straddle would have a WAV of 2, and the market can swing on that very very quickly.

 

It's definitely crossed my mind, but I don't think I'll ever be "coded out of a job." I think as the industry becomes more and more technologically advanced my job will change with it. I think the amount of manual trading I do will decrease over time, but there will still be a need for a deep understanding of the logic and on how to manage a position.

In terms of PnL, I know the firm aims for 50% paid out to employees, but that does not mean that I get 50% of my PnL. As a younger trader my bonus is more dependent on how the firm/desk does overall, and as you get more and more senior it gets closer to that 50% figure and eventually above. Also, individual PnL isn't necessarily completely reflective of individual contribution, as we trade a desk/team and cover each other's trades. The most senior trader very rarely even trades himself, more approves/denies trades on the edge and manages the position/adjusts the model.

 
  1. What system do you use to trade?
  2. Any specific libraries (e.g. scikit-learn, seaborn, self-developed libraries, etc.) within python that you're using?
  3. How do you manage big data using python?
  4. Do you see python being replaced by another tool?

Thanks for doing this ama

 
  1. We use our own proprietary software.
  2. I've used scikit-learn, but for the most part I'm doing relatively simple stuff in terms of the actual coding. Numpy and Pandas are obviously huge for me, and I don't usually get too much more advanced than that.
  3. I'm not sure exactly what you mean by this, if you can elaborate/specify I'm happy to answer.
  4. I'm sure eventually it will be, just as Python is starting to replace Excel in a lot of ways, but I have absolutely no idea when. I also use R a little bit.
 

Thanks for your reply.

Regarding #3, I was referring to the system that your firm is using to analyze huge datasets (e.g. >XXX MB). I would imagine using python to analyze datasets of that magnitude would be extremely resource intensive (& hence takes a really long time to load).

I may be "off" since I'm not aware of the types of data, development environment, or computational power your firm has; if so, please let me know.

 

I wouldn't necessarily say harder, but there are different skills involved. For my firm, you have to definitely be the best of the best in terms of mental math ability and problem solving using logic. At a bank, knowing the markets very well is important.

In terms of breaking in, it is certainly possible and I know many people who have done it, but it will always help make you more attractive to know a coding language.

 

Definitely less cutthroat now, at least at my firm. The focus is very much on paying it forward and helping others learn. Communication is extremely important throughout the day between the desk. Pay is similar, slightly less right out of college but not very significantly (maybe ~10-15% less), with the potential to make a lot more at a much younger age - one of the guys I work with just turned 30, and I'm not sure of his exact salary but he just bought a $3 MM house in Lincoln Park. The flip side of that, though, is that if you aren't very good at trading/aren't able to learn quickly your pay will be stagnant, and you could be making IB for 7-8 years would expect to make.

 

I'm not as worried about "exit-opportunities." I agree IB would have made it easier for me to go into PE or CF if that was what I wanted to do, but it's not. I've been contacted by headhunters for a few major hedge funds, and people leave to go to those types of places all the time. Also, I'm planning on getting a masters degree pretty soon, so maybe I'll use that to pivot. Who knows.

 

I think the VIX will return to higher levels once we start to see the market drop - it's pretty typical to have low volatility in a rising market environment.

Firms like Virtu and Citadel do extremely well. I think the reason that a lot have blown up in the past is a lack of emphasis on risk management/focus on the numbers with underlyings up or down >20%, but I think that firms that are still around (at least the good ones) are putting a lot more emphasis on those numbers/risks now.

 

Thanks for doing this. I got my undergraduate in math and a minor in computer science, and have always had a slight interest in trading. Couple questions:

  1. How much of your math degree do you use? I always enjoyed quick calculations, statistics and calculus but hated writing proofs.

  2. Breaking in from a non-target with low gpa? Does it happen?

  3. How good at coding do you need to be? I've always found it difficult to gauge the level of coding that most quant traders know. It seems like most are rock stars but I am unsure if that is the norm.

 
  1. When I'm actually trading, I use very little, but I use some stuff I learned when it comes to data analysis and finding trading strategies. There are some traders who majored in Econ and never took classes above Linear Algebra.

  2. I'm not sure on the GPA front, but we have traders who are from what most people would consider non-targets, at least for something like IB.

  3. See my below response - "To be honest, I had only basic programming knowledge coming in, and would by no means call my knowledge "advanced" even now. Like I said, I use basic python and R to analyze data, but developers actually code all of our software."

 

Thanks for the response! Three more questions I think that might be beneficial for people trying to break in to trading....

  1. Any tips for breaking in? Should you follow the same process as ibd networking? Cold email, phone chats, coffee meetings etc?

  2. Reputable firms that will tend to not care where you went to school?

  3. Do you worry about not feeling fulfilled with you career? I hear a lot of stories about traders that become disengaged with the job because they don't find it fulfilling.

Once again thanks for doing this. There's a wealth of knowledge on this thread.

 

To what extent do you have to know a programming language upon entrance to a job like yours? I'm a finance major with a minor in CS (C++) however I am wondering if solely a minor is insufficient for algorithmic trading.

 

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