Q&A: The Future/Current State of S&T - BB VP Macro Trader

I feel like I've been answering a lot of questions regarding the state of S&T going forward as well as what a S&T trader does (and trading in general) so I figured it might be helpful to do Q&A. I remember as a freshman in college I used this site extensively to help me eventually land my internships and then my job.

Some background on myself... I went to a target school (non-ivy). I've been in industry a little over 5 years and am a VP level trader at a macro type desk (metals/fx/rates) at a BB. I spent my first year focused specifically on rates. My focus now is more on metals and fx, but still trade rates as it impacts what we do on a prop/hedge basis (just not a market maker in that). I've been fortunate enough to be on desks (on my rates seat and on my current seat) where we take a lot of prop risk. I'm more responsible on the linear side (ex. STIRT) but also have some experience as a back-up in vol. To give you an idea of my experience, I've traded things for prop including: 2s10s (including funding it through specials in the repo market), Eurodollar option structures, FOMC OIS swaps, metals/fx swaps, metals (copper,gold,zinc,palladium, etc.)/fx options, currencies from G10 ex. EURUSD to EM ex. USDMXN.

As an undergrad, I went through the whole networking process, got a sophomore internship at a non BB in S&T, and then got a junior internship at my current bank. I can answer questions about that process too.

Anyways what makes me unique is that although I certainly like trading and markets, I have a rather negative view on the future of the industry (which you can go through my comment history to see why). I wouldn't exactly recommend anyone pursue a long term career in this industry.

Happy to answer questions regarding anything on the above. Ex. Markets/Trading, Career, etc.

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Comments (130)

  • Prospect in S&T - Equities
Apr 6, 2020 - 4:36pm

If we head into a recession this year, will S&T revenues suffer across the street? Or will it vary by desk?

Apr 6, 2020 - 10:15pm

The nature of itself is more dependent on the product. As I've mentioned before, macro desks are most likely to be able to prop risk because these trades materialize in matter of hours / days / weeks / at most months. Because of this, it's impossible to differentiate what is a hedge / anticipation of customer flow vs prop - everything can be considered one or the other or both. Meanwhile, in equities and credit, the holding periods tend to longer for something to materialize, and just overall harder to justify. Risk appetite will be decided by whoever is running the desk and in someways the bank overall which really varies. In general. it's really just American banks.

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Most Helpful
Apr 6, 2020 - 10:59pm

I won't go into too much detail but hopefully at least can walk through what are some of the things I look at. I short USDJPY in late February around 110 after what looked like to me a false break to 112, probably held it for something like 400-500 pips which is pretty good for a day to day type trade.

I don't use anything too fancy, but I have my own models in R / Python / Excel that I'll use to compare relative value of different macro assets. I'll use basic things like regressions, correlations, etc. I keep track of some levels that are important as well. When a combination of things start to line up, I'll start to keep a closer eye on them.

USDJPY had popped up in my indicator as looking quite expensive relative to where other things were at the time (ex. equities, gold, rates, etc). Given the macro backdrop at the time, we were quickly spiraling into risk-off and it did not make sense to me why USDJPY was still so high. I knew I wanted to short it, but wanted to wait for the right confirmation. Equities were starting to drop like a rock, but it was still hovering around the highs. Typically, you don't want to pick tops and bottoms as you more often than not get burned.... For me personally, i'll try to trade with some type of momentum.

It retraced from the highs and eventually got back to where it broke out from, so I set some parameters (risk/reward ratio, targets, trailing stop / adding more etc.), put it on and went from there. Meanwhile, still looked to me was expensive and I felt the macro narrative was still going to get worse, so actually ended up adding with strength along the way. Got close to a previous low within a few days and ended up taking it off - missed out on maybe another 1/3 of the move) but that's ok given my risk/reward ended up being close to 3/1.

As a human, it's pretty much impossible to perfectly systemic, but I felt like I did a decent job with this one. Those are sort of the things I'll consider. I use a combination of models, TA, fundamental macro backdrop/view/narrative, etc.

Apr 6, 2020 - 11:48pm

How do you translate your relative value model to technical trading? And which one would take precedent? Let's say you're looking at your RV model and it go against you but technically, you want to keep it on because technically you still believe in your strategy, what would you do then? Do your keep it or wind down? Also do you ever put on a RV trade without looking at the technical? This is where I get fucked

Apr 6, 2020 - 5:55pm

Thanks for doing this

  1. I would like to know why you choose S&T over IB?

  2. Also curious about your view on the future of HF?

  3. What do you think about Sales vs. Trading? Any thoughts on both of those as career options?

  4. What careers are best to start to pursue (Finance and outside)?

Apr 6, 2020 - 10:33pm

1) Two very different things, different types of people. I like markets/trading, especially macro. I'm not exactly excited by diving deep in companies financial statements. I also don't like the idea of working long hours and not doing much, I think it's pretty pointless.

2). Similar to S&T - over-saturated, way too many people out there in the industry. By definition, there should really only be a select number of people who can achieve actual alpha.

Multi-strats work as a business similar to VCs. You can have 20 PMs, and you just need one or two of them to do very well and you'll make money. The other 90%, you keep them on tight drawdowns and let them go in less than year, hire new ones, repeat.

A good book to read would be House of Money which should given you an indication of just how rare these people are. Most funds and PMs just running glorified carry strategies which definitely do not justify any type of fee.

3) Both roles require certain types of people. I think to be a good sales person is a rarer ability, you really have to "enjoy" talking with people. Faking that will make you feel miserable. Some people just have that natural ability. Trading is more a tolerance of risk. If you can't handle risk at all, then it's not for you. But as I have mentioned before, both roles are diminishing.

4) Definitely still pursue something you are interested in / think you are passionate about. Without that, you won't succeed regardless. If you still want to do S&T or pursue a HF, at the minimum going forward you will need a real quantitative background (ex. Math or CS) - you don't have to be a quant, but you have to have that ability.

Apr 7, 2020 - 4:09pm
  1. Can you tell me the difference in terms of personalities (S&T vs. IB)?

  2. Can you name a few of these great (macro) guys who can generate alpha?

  3. What do you think about typical L/ S funds? What strategies in the hedge fund world do you see succeeding in the future? I think quants will be successful, but what about macro, distressed, event-driven, emerging markets etc.?

  4. What are your long term career goals? Going into macro fund?

Apr 8, 2020 - 10:08am

I think for 3) sales would require more soft-skills, ability to manage people. But the role i think is better defined. You never lose money in your seat, metrics are quantifiable as well.

Apr 6, 2020 - 6:05pm

When you say you're not bullish on this industry as a whole, is that across asset class or do you think there are "pockets" of desks that are illiquid enough to survive automation for a while such as: Esoteric ABS trading, Municipal Bonds (HY and IG), HY EM Corporate Credit, etc.

Apr 6, 2020 - 10:23pm

The industry in general. I think it's over saturated still especially as further innovation is made. Headcount has been reduced year over year regardless of results everywhere. Overall FO compensation is on a secular trend lower - the days of just sticking around and being able to make a lot money are gone. Finance, S&T especially, used to be a field where you could be "ok" and make a lot of money, it's reverting to the mean quickly (if not more). The risk/reward has gone the wrong way.

The desks you mentioned (not so much HY and IG - those are already being automated), but esoteric ABS which is more structuring / deal driven than anything will likely stick around in their current form for much longer. But those desks aren't exactly "traditional S&T". In a way, they are almost closer to banking.

Apr 6, 2020 - 11:38pm

Interesting takes, and I appreciate you sharing your way of thinking about this. I am wondering, as a good friend of mine interned in Munis S&T, whether or not that market has more life like the esoteric market.

It would be interesting to hear your thoughts on his argument, and based on that information if you agree or disagree with him since he gave me interest in the market.

The reason he thinks it does is that even though it's a HY/IG market, you can't legally go short munis + the sales force is big on selling the BBs new issue. On his first point, if you can't go short, the "computer" can't make markets for you since it would essentially be a "bidding" machine. Since other firms don't want to share what they are bidding, it's not possible to acquire pricing info from the bids of other firms from a bidding machine, you need a trader to give you the "flow", to price your bonds accordingly. Since this essentially becomes a "who has the inventory" market, it's a big BWIC market for sellers of these bonds. Sure you could make the BWIC process more simple to execute, but he says you need a trader to analyze the "feel" of who has what bonds and who wants what bonds. For the second point, theres around 5,000 CUSIPs, while in the Muni market there are around 1,000,000 CUSIPs. He says that because of this, there is increased inefficiency in the market for a bunch of reasons. And a 3rd point he brought up is that we are in a low tax environment (meaning the risk is mainly to the upisde in terms of tax rate), and Munis outperform in higher tax environments. That's why he says muni still has a lot of "life".

Apr 6, 2020 - 6:24pm

How frequently do you see people go from IB to S&T? I have heard it's usually other way around, but what do you think is best way to secure BB S&T interviews coming from IB? Just good old fashioned networking?

  • Intern in S&T - Other
Apr 10, 2020 - 1:53pm

You mentioned people in your intern class went ST to IB, was this during the internship, or after joining full time? Also, if it was during full time, was it generally after 1 year or 2 years on the desk? Would be great to hear how they made this transition internally without burning any bridges/leaving a sour impression on their current desk.

Apr 6, 2020 - 11:05pm

Biggest misconception people have about bank trader is thinking they can put on trades solely based on fundys, which is not the case. We're not PM or any close to that nature. Having an idea what the market is doing and why the market is trading the way it is, is important. So let me ask you this, if you had to drop and leave for a shop like Millennium or join a prop trading firm (not market making) but pure prop. How would you be putting on trades? At the end of day, market making does have some layer technicals, which will different amongst each individual and how they want to perceive where the price action is heading

Apr 6, 2020 - 11:30pm

Did you trade LME or Comex metals? Also how did your hours and work/life balance look like since these have very odd market hours.

Have you personally considered moving to a hedge fund or a physical commodity shop?

No need to answer if it's too personal - have you noticed any good/bad compensation trends over the years as FICC business is somewhat cyclical and S&T is leaning down with thinner margins?

Apr 7, 2020 - 9:04am

Yeah I've traded both. I'm based in NYC and my team has traders across the globe. But yes, to be put it shortly, if you really wanted to get into macro / metals trading, you want to be based in London or in that time zone.

I have considered it. But I think I'm in a good seat right now, so don't really see myself leaving. It's also just not as appealing anymore to leave.

In general, the secular trend has been down. A good way to put it is "flat is the new up". Most banks did very well last year in S&T / overall, but compensation was flat should be pretty revealing lol.

Apr 8, 2020 - 1:07pm

Thanks for doing this. Bit surprised to see metals lumped in with fx and rates on a macro desk. Is that very common? On copper, are you trading that as general economic activity proxy while looking out for supply disruptions? I'm in physical and outside of major market news or hedging campaigns I'm aware of, find the day-to-day of the market somewhat inscrutable compared to what is happening on a physical premium level.

Apr 12, 2020 - 10:18am

Yeah especially because on the vol side. Conventions are more or less similar to FX (more so in precious than in base). It also makes sense because of the cross currency stuff that happens especially in XAU - which is basically one giant currency, similar in other metals, but that in particular. On the linear side (ex. forwads), only base is considerably different than FX in conventions.

I'd say in copper, we look at both things, but given the nature of the seat I'm in, I would guess the short term probably has more of an impact on us given our sensitivity to MTM. So in addition, to longer term implications like supply disruptions / hedging / premiums, day-to-day we have to be quite in-tuned. I would think you probably are taking way more risk on the longer term stuff than we are.

Apr 7, 2020 - 12:04am

Thanks a lot for the AMA.

Can you please recommend good books on macro/prop trading?
Also do you have any particular blogs/research/news sources that you follow?
For a retail investor, what would be the best way to learn trading macro products (fx, metals)?
Is there a particular risk-reward ratio you consider when putting on trades?

Array
Apr 7, 2020 - 8:51am

Inside the House of Money is one of my favorite books. You'll get insight into how macro guys think and have a good idea of what it takes. Very rare people.

Pretty much everything I use comes from internal research sources / bloomberg terminal. Outside of that, there are a few macro blogs I follow (Marco Man - before he became a regular piece on bloomberg and Macro Tourist) and FT is pretty good for general thematic / opinion pieces.

As for trading related books:
"Interest Rate Markets: A Practitioner's Guide" - This will give you some insight into how the rates market works and the why. Rates I tend to think are the background of everything in macro.
"The Art of Currency Trading" - This will give you some insight how a professional bank trader will look at things
"Fixed Income Relative Value Analysis" - This will give you some insight into the basic models that people will look at.

Minimum risk/reward for me is 1.5/1. The ideal would be 3/1.

Apr 7, 2020 - 12:05am

Can you give a solid argument why s&t is a dead end? Why did you pursue it with two internships and 5 years in the business.

Not trying to be a dick here but i feel like every argument on this site is that automation is making it harder to make an easy buck. I just dont why thats a bad thing? The only solid argument ive seen here (not calling you out i mean on this forum) is that you cant rip off clients anymore or take 7:1 levered bets that end up blowing up the bank

Apr 7, 2020 - 8:28am

No worries at all. Yeah I think my background should be telling a lot actually. I like markets / trading, and I continued to pursue it because at the time I thought things would get better and people were exaggerating the decline to things like automation. I basically ignored the things that people said like today. Well only took me a few years to see for myself just how fast things were declining... I've seen more and more people be cut even in "record years". Bonus pools To be fair to myself, it wasn't as clear then as it is now lol.

Yes, that is a big part. The other would be things like RWA, etc. It's not a bad thing, it's a great thing if you're the bank. You can get the same done without nearly as many people. But the main concerns are automation and reduced wallet which both lead to reduced headcount which goes back to what I say on risk/reward in the industry. There's a reason why GS / MS and several others are moving resources out of S&T into other developing areas of the bank.

Overall compensation is going to keep going down because banks realize they don't need to pay people. The industry wallet is going down because what banks offer in S&T continue to be widely available and there isn't any need to justify paying large spreads or fees, etc. The industry will continue needing less and less people as tech advancements ramp up. A good example I like to use is that machine learning wasn't even a field when I was in school 5-7 years ago, look at it now...

If there are less seats (and see it happen now all the time), what are you going to do if you're let go at 35 or 40? You have built no skills or experience in anything else that's tangible. In the past, you were able to jump from bank to bank, not anymore. In the past, the risk/reward was probably skewed more towards the reward side which is why so many people wanted to do this. Now, not so much. It was the industry where you could "stick around" and be paid a decent amount of money - that's just not the case anymore with compensation going down across the board everywhere and no open seats anywhere. Now, the reward doesn't seem to justify the risk.

So if you like markets / trading, why do you need sacrifice your career for that risk? I think it's still a decent entry job (you're still paid decently relative, but as a result you don't really gain any experience that translates anything else), but you have to consider getting out sooner rather than later. You can try to learn how markets work / how to trade and can do it for yourself if you find out that you're one of the select few out there in the world who can generate alpha. As you touched upon, the only way to really make money in trading is by taking risk.

Jul 30, 2020 - 1:57pm

I just want to chip in that "ripping off" clients is in fact actually a pretty significant part of "trading" pnl for a lot fo bank traders, at least from my experience, the more complex the product the easier to do so. Thus sitting on a good desk with lots of flows makes life significantly easier.

Apr 7, 2020 - 2:32pm

So typically how it works is that you have a drawdown limits. Once you hit that limit, you're usually cut off for a period of time and able to start again with some restrictions. If you hit it again, you might be cut off for the year from taking prop positions and solely focus on the franchise business. Capital allocation isn't really a concern at a bank since you're effectively using the bank's funding.

Banks will be more lenient on drawdowns than funds like Millenium. Those places, you get a small capital allocation and a tight drawdown (5-10%) with the bonus being you get paid a slightly higher % of PNL. If you hit that draw-down, you'll probably get reduced in capital if not let go immediately. It's pretty common to see guys go to a fund for 6 months and then get let go immediately.

months and then get let go.

Apr 7, 2020 - 11:50am

Hey koalamacro,
thank you for doing this.
I love the markets, math and investing. But I would like to work in sales instead of trading, because I am very curious , I have great communication skills and interpersonal skills and I think I am capable of outlining and presenting complex issues in a simple manner. I like to talk to smart people. Should I still pursue a sales career in S&T? Or should I go into IB? Do you think S&T Salesman are still a good long-term-career?

Apr 7, 2020 - 2:39pm

If you're good at sales, you should be good at sales in any industry. IB I would not go into unless you are genuinely ok with the lifestyle and at least somewhat interested in the type of work.

Tbh I don't think sales is a good long-term career, I think it's more likely than not you start to see a merging of sales/trading across all roles sort of like what equities has already done. But as a I mentioned, the top sales people will do well in any selling role / people facing role - you either have that ability or you don't.

Apr 7, 2020 - 3:05pm

Personally, I'd consider myself above average. Good enough to stick around, but not good enough for me to really want to take the risk of making this all I do for the rest of my life. I've made money trading prop pretty much every year I've been trading starting from my analyst years. I've done well enough to be a good performer in the general trading seat. I'm not a super star and I know that, nor do I have the dedication and desire to be one. I still see myself trading for fun, more as a second job or hobby in the future. I like markets and trading, but not that much lol. I have other interests and things I'd like to pursue.

At the base line, I've recommended the book "Inside the House of Money" to give a peak of what it really takes. There was a time that I thought I might have been like that, but after a few years I know I'm not. In my eyes, there should really only be a select few people who can really claim to be to make money. It's sort of like being a top professional athlete, you genuinely have to be obsessed and that's no guarantee of performance. By definition, there can only be a few. That's why I keep saying industry, both buy-side and sell-side is still over-saturated.

I think it's quite underestimated just how much this job drains you until you've actually done it for a few years. I'm literally checking markets or thinking about them all the time - there's no stop. The first thing I do when I get home from the office is check Bloomberg and I keep checking until I sleep in intervals. The first thing I wake up is to check Bloomberg. I do this everyday except Saturday, and then come Sunday afternoon, it starts again.

In the past, it was enough to sort of just be good enough and you'd be handsomely rewarded - not anymore as I've brought up in previous posts which was why S&T was so popular to begin with.

As for training, I think the biggest thing which allows you to pick up in the seat is how markets work. It's because of the seat you get exposure. It's training ground in the regard that you can try different things or trades which you just wouldn't be able to do on your own. Books are more supplementary and help give you an explanation of why things are - I mentioned a few in an earlier post, but you don't really learn until you do it on the job or see it for yourself.

Apr 7, 2020 - 5:19pm

First off – terrific thread. Thanks for writing it. I mostly agree with your secular assessment.

This quote is what scares my pants off epistemically:

koalamacro:

I'm not a super star and I know that, nor do I have the dedication and desire to be one.
...
There was a time that I thought I might have been like that, but after a few years I know I'm not.

If, by definition, many believe themselves to have 'it'–with conviction–and eventually learn that they do not... by definition, it is impossible to know ex ante whether I should be in this business. Any thoughts on discerning the r:r on an individual basis? The risk manager in me does not like the nature of this trade and screams to pull the ripcord whilst still a spring chicken. Trouble is... I can't imagine myself not being in markets. Advice?

  • Prospect in Other
Apr 7, 2020 - 3:23pm

currently incoming student at in a top mfe program, thanks for doing this

I was wondering how best to prepare for S&T internship interviews along with how u networked.
Thanks

Apr 7, 2020 - 7:12pm

I was really aggressive with networking haha. The way I looked at it was that through networking you could get yourself the first round, and then from there it is on you. I think the first bet is to look through your school's alumni and basically look for people who work in the industry. Try to set up calls through email and then if you can meet them in person.

As for interviews, the best thing you can do is develop a view on the broad markets. Besides the obvious things like know basic technical / behavioral / talk about your resume. Not just follow markets, but show that you have a decent grasp and understanding of what's going on to communicate a view. What do you think will happen in the next three months, six months, a year? What will equities do, interest rates do, fx pairs do, etc. etc.

Apr 7, 2020 - 3:30pm

Thank you for all of your thoughts and advice so far!
I am currently making the decision about college/majors and am trying to get advice from people who have been where I want to get to.
I can either go to an ivy and take out a loan(40k), or a mid tier(non-target) on a full ride. Will the difference in opportunities be worth the debt or will the name of the school make minimal difference?
Also in terms of what to study- do you think finance/econ is still a good route to go or is it more computer sci/AI?

Thanks very much for all your help!

Apr 7, 2020 - 7:14pm

My advice is to take the loan. 40k is not a lot of money. In fact, I basically took out a 40k loan and paid it off within 2-3 years. My first bonus basically more or less covered my loan and I waited until I had a decent base of wealth before I paid it off. Unfortunately how it works is that your school name still gets you into the door to a lot of places in different industries (ex. on-campus recruiting). I think it depends on what you're interested in, but broadly my advice is to go the harder route at school so you keep your options open aka study CS / AI if you can.

Apr 7, 2020 - 4:06pm

Thanks for doing this, always enjoyed reading your comments about S&T

Any plans down the road for you? Exit to HF / stick it out in s&t?

Array
Apr 7, 2020 - 7:20pm

I don't want to go too much into detail, but basically I plan on sticking around at least in the near term while I'm working on some things on the side to keep my options open down the line.

I'm in a pretty good seat right now so don't really want to rush out the door. But to be honest, most of my free time is now spent on that. I can see myself leaving the industry in a few years.

Apr 7, 2020 - 4:30pm

Thanks for the AMA.
I'm a student based in Europe and I'd love to get into S&T, preferably sales. My dream is to become MD there one day. But I cannot ignore the possible necessity to change role after a few years. I'd consider a career in ECM/DCM or private banking. Has anyone you know moved to this roles after some years in S&T? Do they need to go for an MBA to do that? is anything different between US and Europe with this respect?
Thanks a lot!

Array
Apr 7, 2020 - 7:26pm

No that's the problem with S&T. Once you're in S&T for a certain amount of time, you will not be able to move to anything else. So most people end up doing an MBA if they want a career change.

The real danger is if you're let go past that stage where you can go get an MBA and change your career... I know quite a few people who get let go at this stage and to say the least, it's a pretty depressing path.

Apr 7, 2020 - 8:38pm

Hey, thanks for doing this, a couple of questions.

1) It seems like you're very successful at this point (VP, BB, enjoy what you're doing, probably making more $ than almost all your non IB friends), but yet you sound somewhat fatalistic about your future. If you're good at what you do -- and it seems like you are if you've made it this far -- do you really think that a few years down the road, your bank will (a) cut you loose, and (b) you won't be able to find at least a commensurate job at another BB or EB/MM that has a good trading department?

2) Have you considered moving over to GCM, since that seems like it still has a sales element to it?

Apr 8, 2020 - 12:24pm

1) Kind of as I mentioned above, I don't think I'm good enough to really take the risk of staying in the business given my outlook on it. It's more what I think the risk will be in 10-20 years rather than the next 5. I also admit I don't like the job enough to stay. By that point, I can't exactly change my career. I've seen so many people let go at that stage already that they are basically screwed. All you have to do is look at headcount numbers from 2010 to now. When was the last time you actually saw of headline about hiring? In the 5-7 years I've been in the industry, it's been nothing but cuts even as banks themselves have been doing ok to good. It's been 12 years since the crisis now, I think it's fair to say what direction things are heading.

2) What do you mean by GCM?

Apr 8, 2020 - 12:30pm

I meant Global Capital Markets. I know that doesn't involve "trading," but from what I understand, there is a significant sales component to work in that area. And if you're in FI, I was wondering if you ever considered going into Debt Capital Markets... again, from what I understand, kind of a hybrid between S&T and IB.

Apr 8, 2020 - 12:19pm

1) No real answer to this.
2) It's probably a combination of both, I would lean more towards the science side.
3). Probably 0, depends on your definition. Trade generation is creative in the aspect that it requires a lot of reasoning and logic involved. What is the narrative right now? If this happens, what will happen afterwards? What is the market pricing? The trade generation process and trade execution itself is rather methodical.

Apr 7, 2020 - 10:59pm

I'm interning in S&T at a BB this summer as a junior going into my senior year. I noticed you said many from your intern class lateraled from S&T to IB. Can you give any insight on how they may have done that and how difficult it is? Similar to you I see my skill set better suited for S&T than IB and have a strong passion for the markets but I'm also very skeptical of the job security and the way the industry is trending. Any insight would be greatly appreciated!

Apr 8, 2020 - 12:30pm

As I somewhat mentioned above, I don't really think it's worth it relative to the risk anymore nor do I think I would be a superstar performer. I'll admit I've thought about trying to give it a go before I leave lol. But I think I'd rather have stability of my job especially given I'm trying to pursue some other things on the side. The reward / compensation of the other side also isn't as good as used to be.

Apr 8, 2020 - 4:39am

Thanks for doing this! I had a few questions specific to a career change and wanted to hear it from someone more seasoned in the field.

I am a BB associate that recently moved from Credit Risk (HY / distressed credit analysis) into S&T credit trading. The role has a heavier lending focus and due diligence elements that is more similar to that of banking (which I am very familiar with) vs. RV-based trading (which I have a very limited knowledge of). Although I love fundamental credit analysis, I do want to pick up the more "trading" element of the job with the end goal of moving into a credit fund.

1) What is the best way to get a good grasp of the diff types of RV analysis? Is there anything you followed or read (apart from the previously recommended book) when you were starting out?

2) What would you recommend a new trader to do more of or to stay away from?

3) How concerned should I be about the prospects of my job in the context of it being more in the HY lending space compared to flow trading? Recent threads about how "S&T IS DYING" is making me incredibly nervous about having moved into S&T vs. waiting for an opportunity in IBD

3) What kind of exit ops have you seen, not only in your team but wider S&T? Keen to understand how it differs from product to product

Thanks a lot in advance!

Apr 8, 2020 - 12:38pm

1) Not off the top of my head. There are also some research papers out there, I believe CS has one on PCA. The book I mentioned does a pretty good job of walking through the basics. A lot of it is actually building a model for yourself.

2) Definitely want to do more of the idea generation and thinking through things than just blind trade execution.

3) Lending in general is probably better as its more applicable to broad finance. But tbh if you want to work in credit related roles in the future, go to IBD and do restructuring or something. Direct lending shops will only hire from that background - I have a few friends who do that and their background was basically restructuring or lev fin.

4) Basically 0. If you were more towards an analyst, you might have been able to move to some esoteric roles (ex. start ups, corp strat, etc.). By now, it's basically just MBA except in rare situations. If you get let go in later life, lol, it's bad. It's tough to jump to another bank, most common is you end up being a broker... Or do some random sales job.

Apr 8, 2020 - 10:27am

Thanks for the AMA. Will be great if you can answer my questions:

1) I am at a T20 MBA and like you, am passionate about the markets. But I don't want to risk my career for that as the industry is in decline. What career would you pursue if you were in my shoes? Consulting, IB, Corp Finance or Tech?

2) Do you think it is possible it is possible to recruit in S&T in my 2nd year if I dont have an internship right now? I am very passionate about markets and trading.

Apr 8, 2020 - 1:06pm

If you still think markets / trading is top interest, then I say go for it. But just be aware of the risks, that's why the best advice I can offer is to go hard on a CS background because it also at least opens routes later.

Exit ops, after an analyst, there is basically nothing outside of doing more sales or trading. As an analyst, you are still fresh enough to move around into other junior roles (ex. start ups, corp strategy, etc.). After that, you're only real option is more school. And after that, well lol, see my previous posts.

As for the trend, all you have to do is look at the headcount charts from 2010 to now including all of the years of headlines now at this point about cuts. As long as tech keep improving, this will just keep continuing. How many banks are still left in full service S&T? By the end of it, you'll just have a few risk takers for each product. There's a reason GS has been trying to align itself more towards a tech company and exiting a bunch of S&T products.

Future HF talent, also see my previous posts. The industry has also been going through downsizing which will continue. Most equities / credit side comes from banking anyways.

  • Analyst 1 in S&T - Equities
Apr 8, 2020 - 2:56pm

Got a FT offer for both BB Equities & a VC firm - leaning towards taking the VC offer (even if basic comp a tad lower), due to future outlook. What would you recommend?
Did summer internship in equities sales and really enjoyed the markets - but worried about future outlook and possibility to move to VC or other areas further down the line should my interest have just been a fleeting one (for 3 months during a bull market, getting the first buzz etc).

Apr 9, 2020 - 2:22pm

A few questions from someone in silicon valley ( not in finance ). Ever since i realized that the US 10y bond is an input to pretty much every asset class, I've been fascinated by fixed income and macro.

1) Can you explain how people come up with a forecast for movement of rates / yield curvea? What models are used to build these forecasts? wouldn't u need to forecast GDP and inflation first before you can intelligently forecast rates?

2) I've read on this forum (@bondarb) that success in trading is more about risk management than pure alpha ideas. What kind of risk management techniques are they referring to and is that something that can be taught?

3) are there any free periodicals or commentaries for the fixed income space? rarely do u get a wsj journal article that's more technical about rate movements whereas stocks get plenty of coverage.

thanks in advance

Apr 12, 2020 - 10:49am

1) Yes, to build an actual comprehensive model, you would need those things, especially inflation. I'm probably not the best person to answer this type of question as it's more geared towards research / strategists. In terms of a model, you could technically "bootstrap" a curve, by forecasting shorter term rates / forward rates. Ex. One way people think about the curve is what will this rate by in the future, 1y1y. It's easier to forecast short term rates.

2) Yeah, the way to think about it is that with poor risk management, the best idea can be sabotaged. In general, the toughest thing to do is cutting a losing trade (surprise). Things like not adding to losers (doubling down) are way harder to not do in reality haha. Staying disciplined is much, much harder in practice than just talking about it.

3) I like blogs - Macro Tourist is one that comes to mind - he covers a lot of different things. FT is pretty good as well. ZH isn't bad, but they tend to have a very "doomsday" bias lol.

Apr 12, 2020 - 10:54am

Tbh, I haven't really followed USDMXN closely in a long time. When I was actively trading it, it was like 17 or 18 lol. I guess most EMs are trading more or less the same right now anyways.

With that being said, I expect most EMs to recover, so 6 months probably USDMXN to retrace most of the recent move, back to 19-20. But, I'm pretty negative overall on AMLO so 1y, would expect USDMXN to be back to the highs aka now - also pretty negative on oil too in the medium/long term.

Apr 10, 2020 - 12:37pm

@koalamacro any idea how macro trade desk (G10 rates / STIR) is doing at GS this year (recent comps, headcount and trade activity)? given interest rates are going to zero in a lot of countries, do you see less trade at these desks hence higher likelihood of people being let go?

Apr 13, 2020 - 3:28pm

thanks! I read somewhere that you said despite the desks doing well, comps are down or at most flat across all banks, even for rates. is that true? do you happen to know how GS comps fared recently for rates?

Apr 10, 2020 - 1:59pm

Hello! Thanks so much for the AMA! My questions will lean towards more retail trading vs institutional trading. As context, I've been trading equities and options for a while on my own and considering becoming a day trader. Never done any FX though.

  1. What are your thoughts on the complexity of rates or FX compared with options/futures / bonds (assume stocks is easiest). What about the risk/reward ratio? I know the leverage in FX can go beyond 100:1.

  2. There are so many online courses on FX bots and so forth. Are these EAs or robots the way to profit in this market? What's the edge in developing these?

  3. What technical indicators do you like to focus on when you're trading? If any.

  4. Your thoughts on technical analysis versus price action? What are things to pay attention do for you as a trader?

  5. Have you ever thought of becoming an independent trader?

  6. I know people who make like a million bucks or more a month from trading stocks and options. Can pay at banks or prop shops be a million or more for people below the PM level? How about for you generally speaking? (Just curious how banks comp to HF to prop firms like Hudson River)

  7. It seems with the coronavirus the number of traders are ballooning too and going towards penny stocks. What are your thoughts on whether that's a fool's game, how long it might be profitable, etc.?

Would love to hear your thoughts on day trading in general as well since I think there's a very bad rep for it, and people have argued that there is no true alpha and machines will eventually always win, but maybe it doesn't mean you can't still make money in 10 years.

I also know that once one goes down this path, similar to S&T, there aren't many exit opps. Has that ever felt scary/uncertain? Would it be foolish to do so or contingent on a finding a consistently profitable strategy?

Thanks so much for your taking the time to answer.

Apr 12, 2020 - 11:13am

1) Rates to me is the most complex / quantitative product to understand. Unless you're just trying to punt around some 10y futures. FX is probably the easiest to just punt around without knowing anything lol. I probably live somewhere in between that area - I'm not looking at complicated curve structures to make a few bps, but also not just blindly punting around. Risk/reward is probably just whatever works for you, nothing specific about the markets other than looking at their volatility over your time period and setting your trading parameters based on that.

2) I would stay away from those unless you have experience at a bank / fund and strong CS experience. There's just about 0 chance you will create anything that has edge.

3) Honestly, I don't look at anything too fancy. Basic support and resistance tends to work pretty well which is what I mean anyone can look at chart. The one formation that does seem to work well is the "doji" - probably most success on a day candle or week candle, basically whenever something makes a new high or low, but then ends the day flat or lower / higher from where it opened. I guess it's more reflective of the price action.

4) I think they are similar. Price action will tend to manifest itself in charts. When you spend all day looking at screens, you kind of get a feel of how things are trading. Ex. when something should be going higher, but it isn't, there is usually a reason behind that. Positioning is something I look at a lot.

5) I have - I like markets / trading enough to where I'll probably be doing it one way or another even after I leave the industry.

6) Yes - the main reason why you trade for someone else is for leverage and access to capital you otherwise wouldn't have. Unless you have a big capital base (at least a few million), it's probably better to trade for someone else if that's what you want to do.

7) It won't last very long lol. Consistency is the name of the game. Right now, it's just people punting around because volatility is so high. It's no different than flipping a coin.

I do believe that there is alpha and there are superstars out there, but there are far, far fewer of those people than what is reflected in the industry or what is believed. As I mentioned, I don't consider myself to be one. To me it's kind of like being a superstar athlete, there is a threshold of how hard you work, before you either have it or you don't which is why day trading in general the prospects aren't great unless you have some pedigree. Even to get to my point, it took a lot of experience and understanding of markets that most people don't even get close to or exposed to...

My advice is to do it on the side, unless you can objectively say I'm doing something consistently that will work in all market environments over a long period of time.

Apr 13, 2020 - 5:08am

hi Koalamacro,

Thanks for this extremely insightful post.
Would greatly appreciate if you can give me some advice:

To give some background, I studied finance at a good regional school that doesn't have much international recognition. I am fairly good with mental math, but wouldn't consider myself extremely quantitative. I have no experience in coding but am planning to gain some exposure in that field. I interned at a BB's FICC trading desk (small, Asian EM office) where I shadowed the trader. Out of college, I did 1.5 years of equity dealing/sales trading at another BB in the same city, then moved to a middle office role at an US BB that still allowed me to maintain some exposure to derivative products. I have also traded US stocks in my free time.

Macro has always interested me more as compared to analyzing individual companies, so going in to an M7 school this coming fall, getting into a macro fund is my top goal. However, I realize that investment management isn't a major outcome out of MBA (approximately 5~10% of students). In addition, opportunities in macro funds are even rarer than those in equity funds, nor is spending a few years on the FICC desk of a bank a major option for MBAs, so I thought I should probably have some backups.
These are some of the other alternatives that I can think of:
1. I have heard of a friend who joined a BB macro research desk in Asia after her MBA. Would that be a route you would recommend? From what she told me, some of her former colleagues left for the buy-side after their stint there.
2. Focus on recruiting for equity funds. With current regulations regulating trade commissions, it seems like going into equity research first isn't a very enticing option anymore either.
3. Investment banking: Like you, I do not find the job itself as interesting, nor do I think the grueling hours appealing either.

What do you think would be the best option for me and any recommendations on things to do before school starts to better prepare myself?

Thanks.

Apr 13, 2020 - 5:20am

thanks for this
am feeling uncertain what to do, am studying Philosophy, Politics and Econ at a UK target and have had s&t internships.
I know I want to work with the markets and trading seemed a good fit, but as said above, all the headcount reduction, automation etc. is real.
just hoping if you have any ideas what you'd do in my case? is trading dying at the AMs and HFs too or is it mostly a bank situation? am a bit lost as to what career path to take...thanks!

Apr 15, 2020 - 10:34am

At the analyst level will be pretty similar to investment banking as its standardized. Something like 85k to 90k base with 40-80k bonus depending on how did as an analyst. After that investment banking starts widening the gap.

S&T associates make like 125-175k base and bonus anywhere between 20k to 100k depending on your desk performance mostly. Then VP is like 175k-200k base with bonus really depending on your performance and desk. Could be anywhere from 0k to 300k on average. Of course you could theoretically make more, but it's very, very rare especially now.

At the more senior levels, I would imagine S&T is back to closer aligned with investment banking depending on your own performance and desk.

Apr 14, 2020 - 3:07am

Hi, thank you for taking the time to answer questions here. It's always refreshing to find someone who is passionate about macro rather than the corp finance world!

I have spent 4 years in a macro sales role at a BB and have done fairly well but have always been keen to try a risk taking trading position. How would you go about thinking whether that would be a worthwhile switch? Do you think there are better or worse long term opportunities for a good salesperson vs a good trader? If I would like to make this transition, how would you approach making that move?

Apr 15, 2020 - 10:38am

tbh I've never really heard of anyone moving from sales to trading... I think you'd really have to speak with your managers and HR about that possibility. Or look into elsewhere and pitch yourself pretty well.

I think both long term opportunities are about the same (in decline). Probably sales as you can do sales for pretty much any other industry. If you have that ability to sell, you can sell anything.

Apr 15, 2020 - 9:34am

Hi koalamacro,

A little late, but I hope this gets to you. Caught my eye when I saw this AMA, simply because I aspire to be you. My background: VP level IB Trader in FX Spot, never exposed to products outside spot.

My goal: To head a macro desk. So 2 qu's

  1. I know I need to get exposure to other products namely rates, options. I've gotten 1st, 2nd round interviews for non-spot positions in BBs but no offer because I didn't have rates experience. Any advice on moving to another product given my VP rank, all trading experience in spot? Does a graduate degree help?

  2. How does the path usually go to run a macro desk. From what I see, there's the Forward desk, Spot desk, Options desk, then say a China desk that trades all products, on / off shore, spot, derivatives relating to China. I like Japan. Is it plausible that one day I walk up to some big boss and say "Hey, can I create a desk that trades USD/JPY Spot, Options, Yen rates, Nikkei, JGBs"?

Thx, Nijikon

Apr 15, 2020 - 10:48am

I had a unique background in that I started in rates, and then moved to a desk where had the ability to trade a lot of different things. Typically STIRT is where you want to be.

1) You are right in thinking rates is what you need. I've found that to be the foundation for really everything macro. I'm not really sure how you would go to do that in your position as this stage tbh... I think you have the right idea in that you'd have to move somewhere else that gives you the ability to get involved. For me it was simple because I was early on and an analyst level so could move around easily.

2) As I briefly mentioned above, the main background is definitely rates and then move into other things. I guess you could theoretically do that, but would definitely need a good track record!

Apr 25, 2020 - 4:36am
koalamacro:

I had a unique background in that I started in rates, and then moved to a desk where had the ability to trade a lot of different things. Typically STIRT is where you want to be.

1) You are right in thinking rates is what you need. I've found that to be the foundation for really everything macro. I'm not really sure how you would go to do that in your position as this stage tbh... I think you have the right idea in that you'd have to move somewhere else that gives you the ability to get involved. For me it was simple because I was early on and an analyst level so could move around easily.

2) As I briefly mentioned above, the main background is definitely rates and then move into other things. I guess you could theoretically do that, but would definitely need a good track record!

Hi Koalamacro,

Thank you for the advice. Short follow up. 1) Do quant macro desks exist? I envision say a China desk trading CNH Spot, China rates and some China related equity indices. 2) If so, does the move to a quant macro desk, say desk head but also taking positions, still require the candidate to have experience in products outside spot, namely rates as mentioned above.

  • Trader in S&T - FI
Jun 13, 2020 - 9:10pm

Hey there @koalamacro,

May i ask why you say that STIRT is where you want to be?

From my understanding STIRT is a great desk to transition to hedge funds. This is at least what i heard from a rates trader. He told me that hedge funds prefer to take STIRT over rates traders. However, I am not entirely sure why that is. What is your thoughts on this?

Lastly, STIR products in my mind would probably be easier to automate then say longer end rates. Hence, I was thinking that working on rates may be a safer bet than STIR. Am I right to say that?

Thanks for this Q&A it has been very helpful man.

Apr 15, 2020 - 9:42am

do you think the "dead cat bounce" in the us equity markets is over...or do we still have further room to run.

i notice that S&P support at 2840 (Feb 28th) seems to have become resistance

Apr 15, 2020 - 10:58am

My broad opinion is that its probably going to see some stiff resistance around this area, would expect a retracement lower (but not to previous lows) over the new few months. I don't think its crazy to think we just trade sideways for a while going forward after that.

But afterwards, I actually think we break out (lets say in a year). The amount of stimulus in the market is insane, and when this virus sensationalism and initial surge of infection ends (as I briefly talked about earlier), all of it's going to go into assets. Think of post 08, but even more so as the crisis is not as bad and the stimulus is like 10x. The nature of the crisis is not structural either.

Even if the virus doesn't completely go away, the world will adapt and deal with this in the background much like the flu. Taken objectively, if you're even moderately healthy, it's not much worse than the flu (which I remind people all the time also kills people) - it just magnifies the problems for those who are not. So those people day to day will likely be affected in the long run, even then I suspect most people will take the risk of getting sick and just live with that risk.

I think the real issues are going to appear in a few years structurally because of this response which will be way worse than this - a "real" economic crisis.

  • Prospect in Other
Apr 27, 2020 - 1:47pm

Any insight on the future of physical commodities trading, especially at big name shops (Glencore, Traf, etc)? Is automation hitting that industry just as hard? Would you recommend someone with an interest in trading to go that route instead of working at a bank?

Jul 20, 2020 - 4:26am

what are the comps like for VP level macro? base and bonus (% of base for a typical trader, not star trader) these days

Aug 17, 2020 - 5:04pm

I work in one of top BB (GS / MS / BAML / JPM) as a trader
From what I heard and my friends in other BBs, this year management will cut bonus (flat or less that last year) due to the increased capital requirement from federal reserve and industry commoditization.
However, Bloomberg article Bond Trading Seen as Bonus Bright Spot While Others Disappoint says we can expect a bonus increase?
Are you expecting a bonus increase or bonus cut? So far, from data points I collected, looks like smaller banks likely to pay more and big banks likely to pay flat or less.
Will you take a job in smaller banks or foreign banks if you get 10%+ compensation increase?

Aug 18, 2020 - 11:09am

depends on your P&L...for example, lets say you are on a desk that avgs 100mm P&L per year....and you avg 10mm in your own book over the last 3 years, and lets say total comp 400k....assuming your P&L stays the same this year, i would expect slightly lower comp ($50k) ?because the banks need to set aside more $$ for loan loss reserves. However, if you make 20mm in your book this year (so, double), AND the desk total P&L is higher than previous years (not double, but higher), then i would still expect an increase in comp (maybe not double...but an increase...maybe to 600k).

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